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May 31, 2006

Enron Broadband jury splits the baby

The jury in the first re-trial of the Enron Broadband case that ended in a mess of acquittals and a mistrial last year convicted former EBS CFO Kevin Howard (picture on the left) this afternoon on all five counts -- three counts of wire fraud, two counts of falsification of books and records and conspiracy to falsify books and records. Howard's co-defendant -- former EBS accountant Michael Krautz -- was acquitted on all counts. The previous posts on this case are here, including this recent one on the closing arguments of the trial.

U.S. District Judge Vanessa Gilmore scheduled sentencing for the morning of September 11, 2006, the same day on which former key Enron executives Ken Lay and Jeff Skilling will be sentenced by U.S. District Judge Sim Lake on the same floor of the Federal Courthouse in downtown Houston. Howard faces possible penalties of five years in prison on the conspiracy charge and each of the three wire fraud counts, and 10 years on the falsification of books and records count.

Given the unavoidable torrent of adverse publicity regarding all things related to Enron that has occurred since the Lay-Skilling jury returned its verdict last Thursday, it's highly unfortunate that the re-trial of Howard and Krautz was not postponed until a reasonable period of time had passed after the completion of the Lay-Skilling trial. The freedom of a 43 year-old family man and father of two young children now hangs in the balance of that dubious decision.

Posted by Tom at 2:17 PM | Comments (0) | TrackBack (1)

The storms of Katrina

With hurricane season officially starting tomorrow, this NY Times article about the research that has been done over the past year into Hurricane Katrina provides some interesting information, including the stages of the storm on the New Orleans metro area:

The first stage of Hurricane Katrina touched Louisiana as it passed south of the city in the Plaquemines Parish town of Buras with winds of more than 125 miles per hour pushing a storm surge. The wind and water overwhelmed the local hurricane defenses: levees built to withstand 13 feet of water were overwhelmed by more than 17 feet of surge, damaging levees and scattering homes and boats across the thinly populated parish like toys.

As the hurricane moved across Lake Borgne to the east, the effect was quite different: the second storm sent strong waves and a surge estimated at 18 feet or more back across the lake to the levees bordering St. Bernard Parish. The long levees there had been designed to handle 13 feet of water. The assault washed over Chalmette and other communities with floodwaters exceeding 14 feet in some areas. A similar pounding took out the southeastern levee of the development known as New Orleans East.

In its third incarnation, the storm sent the water up a funnel formed at the northwest corner of Lake Borgne and into the city's Inner Harbor Navigation Canal, where the water rose and churned with exceptional force, said Hassan Mashriqui, a researcher with the Louisiana State University Hurricane Center. Those waters shattered flood walls in several places and destroyed the city's Lower Ninth Ward.

As the storm pushed into Mississippi, it sent a final surge toward New Orleans across Lake Pontchartrain, north of the city. As the water stacked up against the south shore of the lake, it rose against the walls of the three main drainage canals that run from the center of the city. Though the surge was weaker than the others and the water did not reach the tops of the flood walls, the 17th Street Canal and the London Avenue Canal suffered breaches that caused the lake's waters to spill into the center of the city.

The NY Times article coincides with my reading over this past weekend of Douglas Brinkley's new book on Hurricane Katrina and New Orleans, The Great Deluge : Hurricane Katrina, New Orleans, and the Mississippi Gulf Coast (William Morrow 2006). Brinkley's book provides mounds of information, but is not particularly well-written, as reviewer Wilfred M. McClay notes in this blistering review:

Let me confess that I haven't read all of the writings of Douglas Brinkley. I doubt that anyone -- perhaps not even Mr. Brinkley himself -- has ever done that. He is a veritable ... deluge of literary productivity, with books to his credit on a dizzying array of subjects, ranging from Beat poetry to Jimmy Carter, and from Henry Ford to, most recently, the failed Democratic presidential candidate John Kerry. Indeed, the range of his literary productions is so wide as to seem indiscriminate. But his bestknown writings seem to have three things in common.

First and foremost is their relentless mediocrity. I cannot think of a historian or public intellectual who has managed to make himself so prominent in American public life without having put forward a single memorable idea, a single original analysis, or a single lapidary phrase -- let alone without publishing a book that has had any discernable impact. Mr. Brinkley is, to use Daniel Boorstin's famous words, a historian famous for being well-known.

By the way, on pp. 14-25 of the book, Brinkley notes the Houston Chronicle's fine science writer Eric Berger and his landmark December 2001 Chronicle story in which Eric predicted the dire impact of a storm such as Katrina on the New Orleans metro area. Eric began blogging at the beginning of the hurricane season last year, and he and I crossed paths as we encouraged New Orleans residents to evacuate on that fateful Saturday before Katrina hammered the upper Gulf Coast even as New Orleans Mayor Nagin continued to delay calling for a mandatory evacuation. Eric's blog became one of the "go-to" sources of information during last year's historic hurricane season, and that experience made me a regular reader of his blog and writings. I have not come across a better blog on science matters for laypersons than Eric's.

As with the Chronicle's recent innovative coverage of the Enron-related trials, Eric's blog is another example of the Chronicle's trendsetting initiative -- inspired by the Chronicle's fine technology writer, Dwight Silverman -- in blending traditional news reports with blogging to change the way in which major news events are covered. Houstonians tend to take the local daily for granted from time to time, but we should all appreciate the Chronicle's willingness to embrace this innovation that has dramatically improved the delivery of important information to citizens.

Posted by Tom at 5:10 AM | Comments (0) | TrackBack (0)

The law clerks of SCOTUS

The ubiquitous Richard Posner reviews in this New Republic Online article (free registration req'd) two new books about the law clerks of the United States Supreme Court -- Courtiers of the Marble Palace: The Rise And Influence of the Supreme Court Law Clerk (Stanford 2006) and Sorcerers' Apprentices: 100 Years of Law Clerks at the United States Supreme Court (NYU Press 2006) -- which provide a glimpse of how the modern Supreme Court operates. It's an entertaining and informative review, reflected by the following blurb:

Except for Justice John Paul Stevens, who writes his own first drafts of opinions, law clerks write the first drafts of their justices' opinions. (According to Courtiers, Stevens's clerks rewrite his drafts extensively, thus producing an inversion of the normal relation of clerk-author to justice-editor. In another inversion, Justice Harry Blackmun, a genuine eccentric, left the opinion-writing to his clerks after his first years on the Court and concentrated on cite-checking their drafts. He was by all accounts an awesome cite-checker.) Some justices rewrite the clerks' opinion drafts extensively, others little. Sorcerers' Apprentices estimates that 30 percent of the opinions published by the Supreme Court are almost entirely the work of the law clerks; and as they are the primary drafters of most of the other opinions as well, probably more than half the written output of the Court is clerk-authored.

Judge Posner is particularly interested in whether the elaborate Supreme Court law clerk system has actually resulted in improvement in the quality of the Court's decisions:

[O]ne can apply quality-related criteria, such as clarity, brevity, guidance provided to the lower courts, and candor in explaining the true grounds of decision, to the opinions in the two eras.

When one does this, one is not likely to find a dramatic, or perhaps any, overall difference in quality. Today's opinions are longer--a dubious virtue. There are more separate opinions, most of which are ephemeral. Today's opinions are more polished, more "scholarly," and more carefully cite-checked, but these are modest virtues. Neither judges nor their clerks are scholars. The scholarly apparatus of judicial opinions belongs to the rhetoric rather than the substance of judicial decision-making.

Read the entire review.

Posted by Tom at 4:39 AM | Comments (0) | TrackBack (0)

May 30, 2006

Monday morning QB'ing the Lay defense

Yes, it's Tuesday, but the Monday morning quarterbacking on the failed defense of Ken Lay is in full swing.

Donald Watkins, an Alabama-based lawyer who headed up the defense team that handled the successful defense of former HealthSouth CEO, Richard Scrushy, says the following about the Lay defense:

In an interview following the Enron trial, Watkins called Lay's strategy wrong from the start because the former Enron CEO began his defense by hiring a team of big-name trial lawyers. What Lay needed first, Watkins says, was a strategist with a broader view of what was needed to keep such a high-profile defendant out of prison.

"Lawyers are technicians," Watkins says. "They're like painters, plumbers and sheet-rockers."

Frankly, although somewhat interesting, Watkins' views should be taken with a rather large grain of salt. First, Lay did not hire a "team of big-name trial lawyers." Mike Ramsey -- Lay's lead attorney -- has a good local reputation as a criminal defense attorney, but is hardly close to a "big-name" trial lawyer in Houston or anywhere else. No one else on the Lay team comes close to having that reputation, either.

Moreover, although similarities exist, all big business criminal cases have significant differences. HealthSouth did not experience anywhere near the societal and media demonization of Enron, which made Lay's public relations problem much more difficult than Scrushy's. Moreover, under the circumstances of Lay's case, Lay's defense had to be far different from Scrushy's, who relied on the "honest idiot" defense and did not testify during his trial. In contrast, the jurors to a person in the Lay trial stated post-trial that they expected Lay to respond to the testimony of prosecution witnesses against him, signaling that they would have crucified him if he had not testified. Thus, the fact that Lay was not particularly effective in defending himself while testifying does not mean that it was a mistake to put him on the stand.

In short, different circumstances call for different strategies. The fact that Watkins' strategy worked in the Scrushy case does not mean that the same strategy would have worked in the defense of Lay. However, his success in the Scrushy case does provide a nice perch from which to Monday morning quarterback.

Posted by Tom at 8:10 AM | Comments (2) | TrackBack (0)

Lessons from an Enron short

Jim Chanos is a well-known investor and investment advisor who specializes in shorting stocks -- one of his most famous shorting targets was Enron back in 2001.

Making money by selling stocks short is most often accomplished through the process of borrowing stock, selling it, and then covering the loan of the stock at maturity by purchasing the stock in the market later at a lower price. The process is often criticized by the short seller's target because it generates profits from misfortune (i.e., when the target company's stock price goes down) and is counter-intuitive to the usual way folks make money on investments -- that is, holding stocks long-term as they appreciate in value. Nevertheless, the practice provides a valuable market purpose in hedging risk and, thus, is a component of any well-structured securities market.

In this Wall Street Journal ($) op-ed, short-seller Chanos provides the following ten lessons (without Chanos' explanation for each rule that is provided in the article) on the Enron saga:

1. The Enron scandal shows a need for a standards-based accounting system, rather than a rules-based one.

2. Mark-to-Market accounting was not the problem at Enron, Mark-to-Model was.

3. Off-balance-sheet deals and entities are "off" the balance sheet for a reason.

4. Wall Street analysts don't "do" complex.

5. The rating agency system breaks down when most needed. Rely on it at your own peril.

6. Beware of, and question, unexpected executive resignations.

7. Whistleblowers aren't whistleblowers if they blow their whistles inside the company walls (note: Chanos is referring to this).

8. Special investigations by corporate boards are almost always a waste of time/money, and often prove highly misleading.

9. Character cannot be compartmentalized.

10: Friends do not let (possibly guilty) friends take the stand in criminal trials.

Read the entire op-ed. Probably because Chanos did not actually read Lay and Skilling's testimony about Enron's short sellers, his comments regarding the extent to which the Lay-Skilling defense strategy relied upon short sellers in explaining Enron's demise reflects the generally overblown nature of the media's reporting of that testimony. Nevertheless, Chano's rules are helpful reminders of the myth that underlies much of American securities regulation and prosecutions such as the one against Lay and Skilling. As noted several times previously on this blog, investing heavily in a company such as Enron without a corresponding hedge is akin to playing the slots in Las Vegas. You can win big, but you can also lose big. The difference is that we don't generally create morality plays to assuage folks who gamble away their money in Las Vegas, and we don't prosecute the casino owners, either.

Posted by Tom at 6:18 AM | Comments (2) | TrackBack (0)

What might have been

In a development that drips with irony on the heels of last week's jury verdict in the Lay-Skilling trial, Houston-based Kinder Morgan, Inc. announced that its management team -- led by Kinder Morgan CEO and former Enron chief operating officer, Richard D. Kinder -- is proposing to take the oil-and-gas pipeline powerhouse private in a $13.5 billion deal that would be the largest management-led, leveraged buyout in American business history.

Any further question that the public company model is looking less attractive to private ownership as a means to building owner wealth in the post-Enron era? Chalk up a good portion of that development as another cost (among the many others, as Larry Ribstein notes) of demonizing Lay and Skilling, as well as everything having to do with Enron. Remind me again -- the purported purpose of these prosecutions was to protect investors in public markets?

At any rate, Kinder and other KM executives are planning on contributing $2.8 billion of their existing shares to the newly private company, and private-equity investors Goldman Sachs Capital Partners, American International Group Inc. and the Carlyle Group would contribute another $4.5 billion. The new private company would take on a total of $14.5 billion in debt, which means that the transaction has a total value of around $22 billion. Kinder and other KM executives are offering $100 a share for the company, which is about an 18% premium on Friday's New York Stock Exchange closing price of $84.41. The 52-week high for KM shares is $103.75.

The irony of the deal is that KM is largely the result of a combination of Kinder's talent and Ken Lay's choice. Back in 1996, Lay and the Enron board were attempting to choose between Kinder and Jeff Skilling to replace Lay as chief executive in running Enron's day-to-day operations. Lay chose Skilling, so Kinder left and began KM with about $40 million in primarily pipeline assets that he bought from Enron as a part of his severance deal. Under Skilling, Enron embraced a business model based primarily on what became a huge trading operation, while Kinder built a formidable portfolio of stodgier, but increasingly valuable, oil and gas pipeline assets at KM.

KM has been fabulously successful. Since 1999, KM's share price has increased over 150% through an aggressive expansion of the company's business in both the U.S. and Canada and the company currently transports more than two million barrels of gasoline a day through 43,000 miles of pipelines, manages over 80 million tons of coal each year, owns huge terminals for distributing oil and gas and oil-sands assets in Alberta, Canada and stores about 75 million barrels of oil and chemicals. As a result, Kinder has become one of Houston's wealthiest business executives -- his 18% stake in KM is worth around $2.4 billion based on Friday's closing KM share price.

Thus, KM's success provides one of the most interesting "what if's" of the Enron saga. What if Lay and the Enron Board had chosen Kinder over Skilling and spun off Enron's trading operation to Skilling in a similar manner to the way in which Enron provided Kinder with the base assets he used in starting KM?

As this earlier post alluded, my sense is that Kinder would have steered Enron to success as a KM-type pipeline company, albeit probably not as successful as KM, which was never hindered by Enron's less-successful business ventures. Meanwhile, I believe Skilling would have enjoyed the same type of success in building a spin-off trading company that Kinder has enjoyed in building KM. Indeed, with the benefit of 20-20 hindsight, Skilling seems like the type of fellow who would have been much more fulfilled in building an Enron spin-off into a trading powerhouse than he was in dealing with many of Enron's far-flung business operations that he neither created nor thought were particularly important to Enron's success.

Amidst the current demonization of Lay and Skilling, most folks largely overlook the fact that Lay probably would not have been indicted at all if he had declined the Enron Board's request that he replace Skilling as Enron CEO when Skilling resigned unexpectedly in August, 2001. What is ignored even more is that the entire Enron saga would almost certainly not have occurred at all had Lay made the better choice ten years ago.

Posted by Tom at 4:26 AM | Comments (2) | TrackBack (0)

May 29, 2006

Garner said what?

My latest Stros review noted Stros skipper Phil Garner's limitations as a big-league manager. A reader asked me to elaborate.

First, let me be clear that I like Garner. He is a genuinely nice man and he represents the Stros well. He's not the worst recent Stros manager by any stretch of the imagination (remember Jimy Williams?). He is just not as good a manager as Larry Dierker.

Apart from allowing the odious Mike Gallo (5.74 ERA/-3 RSAA) and Trevor Miller (4.63 ERA/0 RSAA) to be on the same pitching staff together, Garner gave us a good example of his limitations in the following recent Chronicle blurb regarding two of the Stros' underachieving outfielders, Preston Wilson and Jason Lane:

For those fans wondering why Phil Garner is giving Preston Wilson steady playing time and sitting Jason Lane, Garner mentions Wilson's track record as a major-league run producer.

In contrast, Lane has been a major-league starter for only one season.

"I'll give him every chance I can to get on a roll," Garner said of Wilson, who responded Thursday by going 4-for-5 with a double, two runs, an RBI and two stolen bases. "He's been a productive player. I'll give him every chance I can to keep being a productive player."

So, Garner prefers Wilson over Lane because of "Wilson's track record as a major-league run producer." There is only one problem with that analysis.

It's wrong.

Wilson, who is almost 32 and became a regular National League player at the age of 24, has been a below-average National League hitter and run producer for his entire MLB career -- he has scored 17 fewer runs than an average National League player would have during the time Wilson has been an MLB player (RCAA, explained here). Wilson has been a below-average run producer while possessing a below-average .331 on-base average, an above-average .473 slugging percentage and an above-average .805 OPS (i.e., on-base average + slugging percentage).

Meanwhile, Lane, who is 29 and has been a regular National League player for one season, has been an above-average National League run producer for his two full major league seasons. He has a 14 RCAA while generating a below-average .328 on-base average and an above-average .488 slugging percentage and .816 OPS.

Moreover, even though Lane and Wilson are not having good seasons to date this year, Lane is clearly better than Wilson. Lane's RCAA this season is -2 and he has an above-averge .341 OBA, although his slugging percentage and OPS are below-average at .431 and .771. In 191 plate appearances, Lane has made 129 outs and generated 31 hits, including 9 yaks and 4 doubles, while taking 32 walks, second on the club to 3B Morgan Ensberg. Lane has struck out 32 times and grounded into one double play.

In comparison, Wilson's RCAA this season is -7 and his other numbers are equally atrocious -- a .305 OBA, a .392 SLG, and a pathetic .697 OPS. In just 12 more plate appearances than Lane, Wilson has already made 19 more outs (second on the club only to the equally ineffective-hitting Taveras) while generating 51 hits, only 11 of which have been for extra bases (including five yaks). Wilson has drawn only 9 walks, which is the worst on the team among regular players, and his 56 strikeouts leads the team by far. One good thing about Wilson's high strikeout rate is that at least it keeps him from hitting into double plays, which he has already done five times this season.

In addition to all that, Lane is a clearly superior defensive player to Wilson.

Consequently, Garner favors a less productive singles hitter (Wilson) over the slumping but more productive power hitter (Lane) because of the myth that Wilson is a "proven Major League run producer.' Inasmuch as I do not believe Garner is a disingenuous man, my sense is that he truly believes that Wilson has been the more productive player. That he doesn't understand that Lane has clearly been the more productive player reflects one of Garner's limitations as a manager -- relying on myths rather than analyzing performance accurately.

Jimy Williams' disastrous decision to platoon the extraordinarily productive Ensberg with the notoriously unproductive Geoff Blum during the 2003 season may well have cost the Stros a playoff berth that season (the Stros finished one game behind the Cubs that season in the National League Central race). The difference in productivity between Lane and Wilson that Garner faces is not as great as the difference between Ensberg and Blum that Williams faced in 2003, but -- particularly in a close race for a playoff berth -- these types of managerial mistakes can make a difference.

Posted by Tom at 10:10 AM | Comments (0) | TrackBack (0)

Maggert breaks through at Memphis

My neighbor in The Woodlands, Jeff Maggert, shot a 31 on the back nine yesterday of the TPC Southwind Golf Course in Memphis on his way to a final round, five-under-par 65 and his first PGA Tour win in seven years. Maggert's 72-hole winning score of 271 won the Fed Ex St. Jude's Tournament by three strokes.

Maggert is an interesting fellow. A 42 year-old graduate of Texas A&M, he has an impeccable swing, has played on three Ryder Cup teams (1995, 97, and 99) and has often been in contention in major championships over his 15 year PGA Tour career. However, his three career wins seem somewhat low for a player of his talent, although his streaky putter probably explains much of that.

He has never finished a season outside the top-125 money list during his 15 years on the Tour, but Maggert finished 106th last season and, until yesterday, appeared to be on his way to having his worst year on the Tour. For the year, he had won less than $300,000, missed the cut in his previous three tournaments and in five of the 13 tournaments that he had played in this year, and was 118th on the money list. So, yesterday's victory was particularly welcome, given that it vaulted Maggert to around $1,235,000 in winnings for the year, good for 26th on the money list. Another year, another top-125 finish for Maggert.

By the way, as the father of four teenagers, one of the things I admire most about Maggert is that he is the father of five children, several of whom are teens. He understands the importance of being around for them and his wife, so he does an excellent job of balancing his life on the Tour with his family responsibilities in The Woodlands. Thus, as the rest of the Tour players will be playing in the Jack Nicklaus' Memorial Tournament in Ohio this coming week, Maggert will be knocking it around the local courses with his children and not missing the Tour a bit.

With those priorities, my sense is that we will continue to see Jeff Maggert's name popping up on leaderboards from time to time. Just not all the time.

Posted by Tom at 6:10 AM | Comments (0) | TrackBack (0)

May 28, 2006

Administrative note

I've had to turn off comments for awhile because of an extensive spam attack. I will turn the comment feature back on once I've figured out how to stem the attack, which should be shortly.

Inasmuch as I moderate comments, none of the spam makes it on to the blog site, but it's still easier simply to turn off the comment feature while modifying the spam defenses to deal with the attack.

It's always something.

Update: I've decided to require TypeKey authentication for comments. I would have preferred not to do so, but authentication provides a strong component in the defense against comment spam. I hope the nominal registration requirement for authentication is not too much of a bother. Thanks for the patience.

Posted by Tom at 4:24 PM | Comments (2) | TrackBack (0)

Checking in on Southwest Airlines

Mitch Schnurman, the Ft. Worth Star-Telegram's business columnist, notes that low-cost airline leader Southwest Airlines is now one of the industry leaders in pilot and flight attendant compensation:

Southwest employees are also paid some of the highest salaries in the business, with pilots and flight attendants at the top of the scale.

An experienced pilot at Southwest, for example, earns 45 percent more than his counterpart at United and almost 18 percent more than at American Airlines.

It wasn't always that way. Three years ago, Southwest pilots were paid at least 20 percent less than pilots at legacy carriers. They usually made up the difference, and then some, from Southwest's profit sharing and stock options.

Then the competition began restructuring after losing tens of billions of dollars. Companies shrank, went bankrupt and cut jobs, pay and benefits. Southwest, meanwhile, continued to grow, and workers received small, steady increases, without involuntary layoffs.

If you charted the airlines' worker pay on a line graph, the lines would have crossed about 2004, with Southwest rising to the top and most of the competition heading south.

Schnurman notes Southwest chairman Herb Kelleher's line that "manage in good times as if they're bad, for the bad times will surely come" and then explains how the company has avoided the financial problems relating to employee compensation that have bedeviled the legacy airlines:

In lean times, the company's lower pay helped cushion results. But when profits soared, employees benefited as much as anyone, thanks to rich profit sharing and stock options.

In 2000, for instance, Southwest employees received 16 percent of their pay as a profit-sharing bonus. In 2004, in the midst of the industry slump, profit sharing totaled 5 percent of pay.

That's a lot less, but it's still a meaningful bump. And the payouts didn't become a permanent labor cost, as was the case with most legacy carriers. United, Delta and others signed labor contracts near the peak of the market, locking in expenses that would be difficult and painful to undo later. [. . .]

Southwest has a 401(k) plan and other savings programs, but it doesn't offer a traditional pension. That helps in managing the business, because the company pays as it goes, rather than incurring big long-term liabilities.

At legacy carriers, such pensions were a huge part of pilots' pay packages. United and US Airways dropped their pensions after filing for bankruptcy. At Delta and Northwest, the pensions are in doubt because the airlines are in bankruptcy now. . . Southwest pilots made a conscious decision to go with a defined-contribution plan so employees could get their money every year and decide how to invest it.

They saw what happened to workers at Eastern, Braniff and other carriers in the early 1980s.

"We didn't want to tie our retirement to the airline," [Southwest pilot union VP Carl] Kuwitzky said.

Another good call for the employees and a good call for Southwest.

Read the entire column and marvel at a company that establishes a sound plan and then sticks to it. Sounds simple in theory, but experience proves that it is quite difficult to achieve in practice.

Posted by Tom at 7:12 AM | Comments (0) | TrackBack (0)

May 27, 2006

Ray Nimmer named interim Dean of UH Law Center

After former University of Houston Law Center Dean Nancy Rapaport resigned under pressure recently, a friend asked me who I thought the UH Law Center should hire as the new dean. My reply: "The best replacement is already on the faculty -- Ray Nimmer."

It appears that someone may have been listening.

Earlier this week, the University announced that Professor Nimmer -- one of the most prolific legal minds in Texas -- has been named interim dean of the UH Law Center.

Professor Nimmer is one of the nation's leading authorities on business and bankruptcy law, computer information licensing, e-commerce, and related intellectual property issues, all of which are subjects that he has addressed in the 20 or so books and numerous articles that he has written over his superlative 30 year teaching career. Even more importantly, he is a gifted teacher who has taught a remarkably broad variety of courses at the UH Law Center, including Contracts, Contract Drafting, Evidence, Bankruptcy, Corporate Reorganization Law, Internet Law, Electronic Commerce, Secured Financing Law, Negotiable Instruments, Copyright Law, Information Law, Sales, and Licensing Law. Professor Nimmer's blog is here, and he comments on his decision to accept the interim appointment here.

This is Professor Nimmer's second stint as interim dean of the Law Center. Frankly, it's highly unlikely that the search committee for a new dean will find a more-qualified candidate for the permanent dean position than Professor Nimmer. Here's hoping that the search committee and the UH Board of Regents realize that and name this long-time treasure of Houston's academic community as the new UH Law Center Dean.

Posted by Tom at 8:25 AM | Comments (0) | TrackBack (0)

May 26, 2006

Stros 2006 Review, Part Three

Where have you gone, Roger Rocket?

That's the question that most Stros fans are asking at the 3/10's pole of the season (prior 1/10th of a season posts are here), but it's the wrong one. It's highly unlikely that a return of Clemens would make a viable playoff contender out of this 25-23 club, which backslid with a poor 6-10 record during the most recent 1/10th of the season after going 11-5 and 8-8 in the first two sixteen game segments of the season.

The big problem for the Stros over the past several seasons -- i.e., declining hitting production (see previous posts here and here) -- is combining with far less effective pitching than the Stros have enjoyed over the past two seasons to make this club look very much like an also-ran. Indeed, the Stros already trail the NL Central-leading Cardinals (31-16) by 6.5 games less than a third of the way through the season.

The club's hitting and pitching statistics to date are set forth below, and pdf's of the current hitting stats are here and the current pitching stats are here, courtesy of Lee Sinins' sabermetric Complete Baseball Encyclopedia:

The abbreviations for the hitting stats are defined here and the same is done for the pitching stats here.

As noted above, despite some awful pitching performances over the past 16 games, the Stros primary problem is hitting. During the moribund home series against the Giants when the Stros young starting pitchers fell apart and allowed the Giants to score 34 runs in three games, few people seemed to notice that the Stros scored a total of only five runs in those games. Then, after the Stros peppered the Nationals with nine runs in the first game of the club's most recent series, the Stros scored a total of seven runs in losing the next three games, including back-to-back one run performances. Even with above-average pitching that the Stros have enjoyed the past two seasons -- which this club does not have -- it's hard to win consistently with that type of insipid offensive output.

1B Berkman (13 RCAA/.375 OBA/.605 SLG/.980 OPS) and 3B Ensberg (20/.403/.627/1.030) remain two of the top half-dozen hitters in the National League this season and are the foundation of almost all of the Stros' run production. Although ageless 2B Bidg (1/.356/.472/.827) is having another solid season at the plate, the rest of the club's regular players are quickly becoming a collective train wreck at the plate. RF Lane (-1/.335/.411/.746) is at least remaining reasonably productive despite not hitting, but CF Taveras (-10/.322/.321/.642), SS Everett (-10/.271/.331/.602) and LF Preston Wilson (-9/.289/.384/.674) are quickly descending into the twilight zone of MLB hitting. Even over-performing C Brad Ausmus -- one of the worst hitters among regular National League players over the past decade (-203/.330/.353/.683) -- is showing signs that he is returning to his traditional hitting level after an unusually strong first 30% of the season (4/.377/.412/.789).

The club's hitting woes are exposing another of this club's weaknesses -- the questionable decisions of Manager Phil Garner. Almost a third into the season, Garner inexplicably continues to trot out Wilson rather than the more productive Chris Burke (5/.575/.413/.988), Eric Bruntlett (1/.378/.372/.750) or even Luke Scott, who is hitting .396./478/.874 at AAA Round Rock. Meanwhile, although Taveras' defense at least provides a colorable reason for playing him despite his offensive limitations (a trait that Wilson does not share), Garner doggedly continues to place Taveras at the top of the batting order despite the fact that he is quickly becoming one of the worst regular National League players in terms of producing runs. That's exactly the opposite of what you want to see out of a top-of-the-lineup hitter, and Garner's stubborn ignorance of that fact is a surefire sign that he does not have the flexibility of a top-flight manager.

Meanwhile, the pitching continues to be below average among the 16 National League teams in terms of runs saved against average (RSAA, explained here), which is a decided downturn over the Clemens-led staffs of the past two seasons. Beyond Roy O (3.36 ERA/8 RSAA), no pitcher on the staff has been particularly consistent, although almost all of them have had their moments when they have been effective. Despite the speed bump of the recent home series with the Giants, Buchholz (4.35 ERA/ 0 RSAA) and Rodriguez (3.88 ERA/3 RSAA) continue to pitch reasonably well for young starting pitchers, and even the less effective Nieve (5.36 ERA/-5 RSAA) had a reasonably strong outing against the Nationals the other day.

However, veteran starter Pettitte (5.76 ERA/-11 RSAA) continues to struggle mightily this season after having the best season of his career last season and most of the rest of the staff has been an accident waiting to happen, particularly troubled closer Brad Lidge (6.53 ERA/-5 RSAA), who is currently the second worst pitcher (after Pettitte) on the staff in terms of runs saved against average. With two spots in the bullpen manned by the ineffectual Mike Gallo (5.54 ERA/-2 RSAA) and Trevor Miller (6.23 ERA/-2 RSAA), this staff does not come close to the depth and overall strength of the staffs of the past two seasons. Such downturns sometimes happen to pitchers, whose performance (outside of the top pitchers such as Oswalt and Clemens) is generally far more prone to broad swings in productivity from season to season than hitters normally experience.

Which brings us back to my point about Clemens. Although it's unrealistic to expect the Rocket to perform at the extraordinary levels that he produced over the past two seasons, my sense is that his contribution to this club would still be an improvement over Nieve in the starting pitching rotation. Based on a reasonable expectation of productivity, that change in the pitching staff (including moving Nieve to the bullpen and dispensing with a less productive pitcher) would probably save the Stros 10-20 runs over the remainder of the season. While a considerable improvement over current pitching performance levels, that's not close to being enough runs to push this club into contender status without a big productivity turnaround in hitting (not likely) or pitching (more likely, but not probable).

Thus, the next tenth of the Stros season will likely determine whether the club can remain in the race for a playoff spot. After a series in Pittsburgh against the hapless Pirates (14-33), the Stros play the Cardinals in St. Louis, then the Reds (27-20), the Cubs (18-28) and the Braves (24-23) at Minute Maid Park. Absent a turnaround from the current downward trend -- which is not helped by the fact that Berkman will be out for a few days after hyperextending his right knee -- the Stros may find themselves being in the unusual position (for them) of playing out the string by mid-June.

Do you think that the Rocket really wants any part of that?

Posted by Tom at 5:00 AM | Comments (3) | TrackBack (0)

Lay-Skilling, Week Seventeen

Remember that point made in the previous week summaries about the predisposition of the leaders on the jury determining the outcome of the trial of the corporate criminal case of the decade?

Well, in a strong indication that this trial was already over after the jury was selected, the jury in the Lay-Skilling trial concluded its relatively short deliberation (less than five days) before the long holiday weekend and returned a verdict of guilty on most counts against the two key former Enron executives. The jury convicted former Enron chairman Ken Lay on all six conspiracy, wire fraud and securities fraud charges, and then U.S. District Judge Sim Lake piled on by finding Lay guilty of four more charges of bank fraud in connection with Lay's bench trial over his self-admitted violation of Regulation U in using bank lines of credit improperly in buying stock in publicly-owned companies. Former Enron CEO Jeff Skilling was convicted on 18 counts of conspiracy and securities fraud, but the jury convicted Skilling on only one of ten counts of insider trading, prompting Larry Ribstein to ask "does this mean that the jury thought he didn't know enough about what was happening to bar him from trading, but that he did know enough to go to jail for fraud?"

Ah, the vicissitudes of criminalizing corporate agency costs.

Most followers of the case agree that the jury's verdict is not particularly surprising. As noted here many times during the trial, the Enron Task Force prosecutors did an effective job of presenting a fundamentally weak case against Lay and Skilling, emphasizing time and time again the real presumption upon which the Task Force's entire legacy case was based -- that Lay and Skilling are rich and Enron collapsed, so they must be guilty of something in connection with Enron's descent into bankruptcy. Despite the transparent nature of that presumption, the harsh reality of defending wealthy business executives is that most jurors are just ordinary folks with nominal experience in complex business matters who readily accept such a presumption. That presumption -- coupled with an overwhelming public bias, particularly in Houston, against anything having to do with Enron -- was in the end simply too much for Lay and Skilling to overcome.

Although I did not attend nearly as much of the trial as many other observors, I read the entire trial transcript, so I have a reasonably good understanding of the testimony and the evidence. It's always a hard call to say when a case as long and arduous as this one may have turned in favor of the prosecution, particularly given the probability that the leaders on the jury were predisposed in favor of the Task Force's case from the beginning. However, my sense is that the Lay-Skilling defense was in reasonably good shape after completion of the Task Force's case-in-chief -- there had been no defining moment during that presentation that would have appeared to compel the jury to convict. Even as late in the trial as completion of Skilling's testimony during presentation of the defense's case, no one incident had occurred that appeared to undermine either side's position in the trial.

However, if there was a defining moment in the trial that sealed the defendants' fate, then it likely came in Week Fourteen during Task Force prosecutor John Hueston's cross-examination of Lay over the use of his company line of credit. Although Lay's line of credit was legal and the company disclosed his use of it in accordance with applicable law, Lay's repayment of the large draws on the line with Enron stock at a time when he was encouraging employees and the market to buy company stock was an apparent contradiction that the jurors could easily grasp.

Similarly, Lay's decision to draw down $1 million on the line five days before Enron's bankruptcy was a disastrous decision for the defense. Although done on advice of counsel, Lay's last-minute draw as the company was sinking into insolvency looked so bad that reference to that testimony by leaders of the jury during deliberations was probably enough to seal any wavering non-leader juror's view on whether to convict. If I'm right on that speculation, then one of the most fascinating "wonder if's" of this trial is whether Skilling would have done better had Lay's motion for a separate trial early in the case been granted rather than denied?

More time for reflection is needed before the true impact of this trial on business interests can be properly assessed, but the initial signs are not good. Beyond the waste involved in such prosecutions, it's hard to fathom how any CEO of a publicly-owned corporation after Lay-Skilling could feel comfortable about doing anything more than making the most banal public statements about the CEO's company. Indeed, little incentive exists for a CEO to say anything publicly about the CEO's company at this point other than "everything you need to know is in our regulatory filings, so go read those." The Lay-Skilling saga will quite likely represent yet another disincentive for business executives running emerging businesses to tap public equity markets, while another quite probable effect is to reduce the supply of innovative business executives who will be willing to take on the increasingly risky CEO position in a publicly-owned company at all. Given that none of that is good for the health of public equity markets, those are decidedly incongruous results for a prosecution that was supposedly premised on protecting investors in those markets.

Even more troubling for business interests is the disingenuous nature of the Task Force's theory of the case against Lay and Skilling. The Task Force pitched the case to the jurors as one in which Lay and Skilling misled unsuspecting investors by touting Enron during a period in which it was a much more troubled than they were really letting on. As Jeff Matthews pointed out during the trial, since when did it become a crime in America for business executives to be overly optimistic about their company?

Any investor who did who did any meaningful investigation of Enron over the final half-decade of its existence easily discovered that the company was a relatively highly-leveraged but innovative business with a low credit rating that was experiencing explosive growth in its trading operation. As such, it was never anything more than a speculative play for investors and, as such, one that should have been hedged. Jim Johnston of the Heartland Institute noted the same thing recently in this post:

[Investors in Enron stock] should have hedged their risk exposure. If they did not, they were like motorists who have accidents while driving without automobile insurance. We generally do not feel sorry for those people. Moreover, not being hedged is an indicator that those folks did not understand Enron’s basic business model and therefore did not deserve the run up in Enron’s stock price in 2000 and 2001. They gambled. For a while they won, but eventually lost. This is hardly any different from going to Las Vegas. Except, the federal government is not being asked to prosecute the casinos for fraud.

Stephen Bainbridge noted a similar dynamic in his initial blog post on the verdict:

One of the curious things about this case is the documented evidence that "a number of people were contradicting Enron's own rosy view of itself long before the middle of 2001." At what point does a lie by top management cease to matter if the market doesn't believe it? Presumably the government convinced the jury that people believed the lies Skilling and Lay told, but did the market really do so?

In short, the Task Force presented the jury with the convenient Enron morality play that has become so engrained in the American psyche over the past five years rather than the more nuanced truth. The morality play is easier to tell and understand, but the truth is much more likely to result in justice.

As far as appeal points go, there are a couple of obvious grounds. The first is Judge Lake's denial of the Lay-Skilling defense team's repeated motions to change the venue of the trial from Houston. Although that issue will be determined on appeal under the formidable abuse-of-discretion standard, the Lay-Skilling team will still be able to mount compelling evidence of five years of relentlessly negative local media reporting on Enron, Lay and Skilling, as well as pre-trial polling showing a jury pool that was overwhelmingly predisposed to believe that Lay and Skilling must have done something wrong. Even during the trial, the Houston Chronicle -- which did a commendable job of blending traditional news reporting with blogs in providing a trendsetting framework for covering an important news event -- featured its lead business columnist on its online Enron news page, who regularly mocked Lay and Skilling in blog posts and columns. If there ever was a case that begged for a change of venue, then this was it.

But the second obvious appeal point is the most troubling aspect of the entire case -- the Task Force's unprecedented designation of over 100 former Enron executives as unindicted co-conspirators with Lay and Skilling. Never before has such a wide-ranging conspiracy been alleged in a federal prosecution, and the transparent Task Force motive for doing so became apparent as the prosecution essentially punted on presenting any meaningful case involving a conspiracy of those unindicted co-conspirators during the trial.

The massive unindicted co-conspirator designation was vitally important to the Task Force's prosecution for two reasons. First, as noted in this post early in the trial, the designation allowed the Task Force to introduce hearsay statements of those unindicted co-conspirators through the testimony of the Task Force's cooperating witnesses. The Task Force elicited such hearsay statements from its cooperating witnesses frequently during the trial.

But even more importantly, the designation of unindicted co-conspirators effectively precluded dozens of former Enron executives with exculpatory testimony for Lay and Skilling from disputing those hearsay statements or even testifying in the trial because of the threat that a waiver of the Fifth Amendment privilege against self-incrimination would likely lead to criminal charges against such a witness if he or she were to testify contrary to the Task Force's theory of the case. As noted in this earlier post, the Task Force has used that dubious tactic in each of its Enron-related prosecutions and -- as with the other cases -- the impact on the Lay-Skilling trial cannot be underestimated.

The Task Force presented the jury with testimony against Lay and Skilling from around 15 or so cooperating witnesses who were former Enron executives. Inasmuch as the Lay-Skilling defense was hamstrung from calling former Enron executives who would have provided exculpatory testimony for the defendants, the jury could have reasonably concluded that the testimony of the former Enron executives who were cooperating with the Task Force was credible because that testimony was not counterbalanced with exculpatory testimony from other Enron executives. For example, what would the impact have been on this jury if several former Enron executives had testified that key Task Force witness Ben Glisan had repeatedly lied during his testimony? At least one juror in post-trial comments noted that the jury relied heavily on Glisan's testimony against Lay and Skilling. Would that reliance have been as great had Glisan's testimony been challenged by not just the defendants, but numerous other -- and potentially more credible -- former Enron executives?

As noted in last week's weekly post, reasonable people can differ over the issue of whether criminalizing corporate agency costs is sound public policy. However, there is simply no serious question that the Task Force’s effective preclusion of exculpatory testimony for Lay and Skilling from this trial is a serious affront to the principles of justice and the rule of law upon which our criminal justice system is based. As Sir Thomas More reminds us, "do you really think you could stand upright in the winds that would blow" if such a prosecution tactic were turned on you?

The parties and their attorneys in this titanic struggle now take a well-deserved breather for a couple of months until the sentencing hearing in early September, a week or so after Labor Day. Prosecutors Sean Berkowitz, Hueston and Kathy Ruemmler all performed effectively during the trial and carved a path for further success within either the Justice Department or a more lucrative job in private practice. On the defense side, lead Skilling attorney Daniel Petrocelli and his entire O'Melveny & Myers team were brilliant in defeat, and Lay attorney Mac Secrest did an admirable job under extremely adverse circumstances in picking up a substantial part of the Lay defense when Mike Ramsey was incapacitated by health problems during the trial. On the bench, Judge Lake was his usual steady presence in handling the unwieldly case and he now becomes the focal point as the case turns to its sentencing phase.

While operating under mandatory sentencing guidelines, Judge Lake was reportedly not pleased with what he considered to be his obligation to sentence former Dynegy mid-level executive Jamie Olis to a draconian 24-year prison sentence. Shortly thereafter, U.S. District Judge Ewing Werlein rejected Task Force calls for severe 15-year sentences against the four Merrill Lynch executives who were convicted in the currently unraveling Nigerian Barge case, and Judge Lake will almost certainly be confronted with Task Force requests for even longer sentences against the 64-year-old Lay and the 52-year-old Skilling. Nevertheless, the sentencing guidelines are no longer mandatory, so Judge Lake will have more flexibility in fashioning punishment for the two men than he previously believed that he had in the Olis case. In thinking about what Judge Lake ought to do in this case, I cannot improve on Larry Ribstein's observation in concluding his post on the Lay-Skilling verdict:

Many people think that there was so much loss associated Enron that the guys at the center of it must have been villains. But they weren't villains. The jury is saying they weren't even insider traders, as if that would have made a difference. They lost as much as anybody, and that's what drove them to lie, if they did lie. This doesn't make them saints, but it should make even the most hardcore antibusiness types queasy with the denouement of this tragedy. Locking these guys up for pretty much the rest of their adult lives for being unable to face the fact that their dream had ended is not the way a civilized society would deal with this case.

Speaking of that supposedly civilized society, amidst the media barrage over the Lay-Skilling verdict, two men and their families in a much different Enron-related case cling to the faint hope that the jury in that case can ignore the rabble and render a fair verdict. A faint hope indeed.

Posted by Tom at 4:00 AM | Comments (26) | TrackBack (1)

May 25, 2006

Oh, Canada!

This video puts to bed any question of whether "Oh, Canada" is the most stirring national anthem regularly played at a sporting event.

With that kind of inspiration, it's no surprise that the Edmonton Oilers are running away with the NHL Western Conference Finals series with the Mighty Ducks.

Hat tip to Eric McErlain for the link.

Posted by Tom at 8:12 AM | Comments (4) | TrackBack (0)

Thinking about heroin addiction

Theodore Dalrymple -- the pen name of British psychiatrist and author, Anthony Daniels (previous posts here) -- has written a new book, Romancing Opiates: Pharmacological Lies and the Addiction Bureaucracy (Encounter 2006) in which he challenges the conventional medical wisdom regarding opium addition. In this Wall Street Journal ($) op-ed, Dalrymple provides interesting insight into the nature of addiction:

I have witnessed thousands of addicts withdraw; and, notwithstanding the histrionic displays of suffering, provoked by the presence of someone in a position to prescribe substitute opiates, and which cease when that person is no longer present, I have never had any reason to fear for their safety from the effects of withdrawal. It is well known that addicts present themselves differently according to whether they are speaking to doctors or fellow addicts. In front of doctors, they will emphasize their suffering; but among themselves, they will talk about where to get the best and cheapest heroin.

When, unbeknown to them, I have observed addicts before they entered my office, they were cheerful; in my office, they doubled up in pain and claimed never to have experienced suffering like it, threatening suicide unless I gave them what they wanted. When refused, they often turned abusive, but a few laughed and confessed that it had been worth a try. Somehow, doctors -- most of whom have had similar experiences -- never draw the appropriate conclusion from all of this. Insofar as there is a causative relation between criminality and opiate addiction, it is more likely that a criminal tendency causes addiction than that addiction causes criminality.

Furthermore, I discovered in the prison in which I worked that 67% of heroin addicts had been imprisoned before they ever took heroin. Since only one in 20 crimes in Britain leads to a conviction, and since most first-time prisoners have been convicted 10 times before they are ever imprisoned, it is safe to assume that most heroin addicts were confirmed and habitual criminals before they ever took heroin. In other words, whatever caused them to commit crimes in all probability caused them also to take heroin: perhaps an adversarial stance to the world caused by the emotional, spiritual, cultural and intellectual vacuity of their lives.

It is not true either that addicts cannot give up without the help of an apparatus of medical and paramedical care. Thousands of American servicemen returning from Vietnam, where they had addicted themselves to heroin, gave up on their return home without any assistance whatsoever. And in China, millions of Chinese addicts gave up with only minimal help: Mao Tse-Tung's credible offer to shoot them if they did not. There is thus no question that Mao was the greatest drug-addiction therapist in history.

Substitution of one drug for another is at best equivocal as a means of treating drug addicts. No doubt if you gave every burglar $10 million, each would burgle far less in the future; but this treatment of the disease of burglary would scarcely discourage burglary as a social, or rather antisocial, phenomenon. And the fact that there would be a dose-response relationship between the amount of money given to burglars and the number of burglaries they subsequently committed does not establish burglary as a real disease or money as a real treatment for it.

Why has the orthodox view swept all before it? . . . [A]ddicts and therapists have a vested interest in the orthodox view. Addicts want to place the responsibility for their plight elsewhere, and the orthodox view is the very raison d'être of the therapists. Finally, as a society, we are always on the lookout for a category of victims upon whom to expend our virtuous, which is to say conspicuous, compassion. Contrary to the orthodoxy, drug addiction is a matter of morals, which is why threats such as Mao's, and experiences such as religious conversion, are so often effective in "curing" addicts.

Posted by Tom at 6:18 AM | Comments (3) | TrackBack (0)

Remember the NBA?

Once upon a time seemingly long ago, the Houston Rockets were the most popular professional sports franchise in Houston. However, after nine straight seasons of not winning a playoff series, and while watching its Texas competitors -- the San Antonio Spurs and the Dallas Mavericks -- ascend to NBA elite teams, the Rockets have become an expensive joke on the local sports scene. That's particularly unfortunate because, as Bill Simmons notes here, this season's NBA Playoffs have been highly entertaining.

Meanwhile, this NY Times article profiles mercurial Mavericks owner Mark Cuban, who has steered the Mavs to the NBA Western Conference Finals this season and has the club primed to make multiple runs at an NBA Championship over the next several seasons. Inasmuch as only three Rockets players (Yao Ming, Tracy McGrady and perhaps Luther Head) have sufficient ability even to play for the current Mavericks team, Cuban's rebuilding of the Mavericks' personnel -- as well as the Phoenix Suns making the Western Conference Finals this season despite the absence of the club's best player -- are powerful reminders of the poor personnel decisions that the Rockets have made over the past decade. One can only wonder why it took Rockets owner Les Alexander so long to do something about it?

On the NBA in general, Malcolm Gladwell, he of Tipping Point fame, has authored this interesting New Yorker review of the new book, The Wages of Wins: Taking Measure of the Many Myths in Modern Sport by three economics professors, David Berri, Martin Schmidt, and Stacey Brook. In this related blog post, the authors summarize their research about decision-making in the NBA as follows:

Payroll does not explain much of wins in the NBA, MLB, or NFL. Specifically, payroll only explains 12% of the variation in wins in the NBA. In baseball explanatory power is 18% while in the NFL it is below 5%.

We think the low explanatory power of payroll in baseball and football can at least partially be explained by the relative inconsistency of performance in these sports. As we note in our book, across time in baseball and football we see fairly wide variations in player productivity. After all, who expected the Detroit Tigers to be so good this year?

Relative to these sports, though, performance in the NBA is more consistent. So why is payroll still unable to explain much of wins?

We think the answer lies in how players are evaluated in the NBA. For more than two decades economists have looked at the link between player salary and various performance statistics. Scoring totals are the only player statistic that consistently explains player pay. Shooting efficiency, rebounds, steals, and turnovers do not consistently offer much explanatory power. We updated these studies in our book. Our story, though, was essentially the same. Scoring totals are the one statistic that matters most in determining player pay.

How much players are paid is not the only decision economists have examined. Ha Hoang and Dan Rascher published a study in Industrial Relations in 1999. The Hoang and Rascher study looked at the factors that caused a player to be cut from an NBA roster. The only player statistic these researchers found to matter was scoring. All other player statistics did not matter.

We have looked at the coaches voting for the All-Rookie team and the factors that impact where a college player is drafted. What matters most? Again, scoring matters more than factors associated with getting possession of the ball (i.e. rebounds, turnovers, and steals).

Wins in the NBA, though, are not just about scoring. Possession factors have a large impact on the outcomes we observe in the NBA. When you look at all the statistics the NBA tracks you find that with these you can explain 95% of the variation in wins. And when you look at all these statistics you find that you can create a very accurate estimate of the wins each player produces.

The authors then conclude:

Conventional wisdom in basketball is incorrect. Players who only score are not as valuable as people think. Players who do not score much — like Ben Wallace and Dennis Rodman – have a bigger impact on team wins than people seem to think.

Does this fit what many people believe about the NBA? No, but as academic research often indicates, what people believe does not always match what the data says.

Posted by Tom at 4:44 AM | Comments (1) | TrackBack (0)

The latest troubled PGA Tour event in Texas

First, it was the Shell Houston Open reeling from the consequences of some dubious decisions.

Then, a change of date and a mediocre golf course is generating concern over the future of Dallas' EDS Byron Nelson Open.

Now, this Kevin Sherrington/Dallas Morning News column (free registration required) notes that the best Tour players are turning their backs on the venerable Colonial Invitational in Ft. Worth and the tournament is losing its title sponsor to boot.

And, just to remind, San Antonio's Texas Open is played in October, smack dab in the middle of football season.

Does anyone with PGA Tour management notice or care that the Tour's Texas tournaments are quickly becoming afterthoughts?

In the meantime, this Alistair Tait column about Darren Clarke's costly example of sportsmanship at the recent Irish Open reminds us of one of the big reasons that golf is such a special game.

Posted by Tom at 4:22 AM | Comments (0) | TrackBack (0)

May 24, 2006

Rethinking H-P's merger with Compaq

The Wall Street Journal's Alan Murray is rethinking the conventional wisdom with regard to Hewlett-Packard's much-criticized 2002 acquisition of Houston-based Compaq Computer Company that many believe cost former HP CEO Carly Fiorina her job:

At a meeting of H-P's board not long ago, Chief Financial Officer Robert Wayman did a retrospective look at the merger. The results were so compelling that even some board members were stunned, some attendees say.

At the time of the merger in 2001, the company set three broad goals: to strengthen its market position, to improve its competitiveness and to increase shareholder value.

H-P was in third place in the personal-computer market in 2001 and posting losses. Today, it is a strong second, breathing down Dell's neck for the lead and posting profits -- though still not as much as it would like. In the industry standard computer-server business, H-P was then in fourth place and bleeding red. Today it is No. 1 and nicely profitable.

On competitiveness, the company's total operating expenses came to 21.5% of revenue back in 2001. Today, that is down to about 16% -- and all but one percentage point of the decline happened before [current H-P CEO] Mark Hurd's cost-cutting campaign took hold.

As for shareholder value -- well, at the time Ms. Fiorina left office, there was little to boast about. But recently, H-P has surpassed all of its rivals. Total return to shareholders since the merger has been almost 50%. Dell has been almost flat in the same period, while IBM shareholders have lost substantial sums of money.

So, did the H-P Board unjustly can Carly now that her vision is being vindicated? Murray notes that the story is more complicated than that:

The truth is that H-P's board members never completely lost faith in the merger -- after all, many of them had been a party to it. They just lost faith in Carly. She created a matrix-management structure they couldn't understand and muddled lines of reporting that made it difficult to hold anyone responsible. She concentrated too much power in her own office, and then took to the road making speeches and wasn't there when decisions needed to be made. Perhaps most importantly, she was disdainful of the board's efforts to change her ways.

It is difficult to find anyone involved with H-P today -- board member, shareholder, employee, customer, analyst -- who isn't happy that Ms. Fiorina is gone and that Mr. Hurd has taken her place. He is everything she wasn't. He dives deep into operations, is in love with the metrics and out of love with the media. He disdains vision; he is all about execution. [. . .]

H-P's directors went through hell together. In the end, they got the best of both worlds -- a charismatic CEO who brought about a hotly contested but transformational merger, and a no-nonsense, operations-oriented CEO determined to make the combined company work.

Read the entire column.

Posted by Tom at 6:00 AM | Comments (0) | TrackBack (0)

Toyota v. GM, Texas style

Texas is a big business battlefield in the automobile wars, and this excellent Lee Hawkins Jr. - Norihiko Shirouzu/WSJ ($) article reviews the competive advantages that Toyota Motor Corp. enjoys in building trucks in its new San Antonio manufacturing facility over General Motors Corp's reliance on its 50 year-old Arlington manufacturing facility. Not only does Toyota enjoy the advantages of newer equipment and more expansion room at its facility in comparison to the landlocked GM plant, a brief review of the cost structure of the two plants speaks volumes about GM's current problems:

Two decades ago, GM factories suffered from a sizable gap compared with similar Toyota factories, as measured in the number of hours it takes workers to build a vehicle. Recent Harbour surveys show that this gap has narrowed substantially. But GM's productivity gains are offset by higher hourly labor costs and the burden it carries for benefits owed to retirees.

In Arlington, GM pays union-scale wages of $26.50 to $30.50 an hour to its 2,800 hourly workers there. On average, GM pays $81.18 an hour in wages and benefits to U.S. hourly workers, including pension and retiree medical costs. At that rate, labor costs per vehicle at Arlington are about $1,800, based on the Harbour Consulting estimate of labor hours per vehicle.

In San Antonio, Toyota will use non-union labor and will start its 1,600 hourly workers at $15.50 to $20.33 per hour, which will grow after three years to $21 to $25. Harbour Consulting President Ron Harbour estimates Toyota's total hourly U.S. labor costs, with benefits, at about $35 an hour -- less than half of GM's rates. The brand-new plant won't have any direct retiree costs for many years. So if the San Antonio factory does no better than match the Arlington plant in productivity, it could still enjoy a labor cost advantage of about $1,000 per vehicle, a substantial sum in industry terms. That's money Toyota could translate into extra standard features -- such as stability control -- that could make its trucks more appealing.

Read the entire article. Despite GM's troubles, the company can still produce a pretty slick commercial.

Posted by Tom at 5:31 AM | Comments (2) | TrackBack (0)

Lloyd Bentsen, R.I.P.

Former WWII hero, Texas senator, Dukakis Vice-Presidential candidate and Clinton Administration Treasury Secretary Lloyd Bentsen died Tuesday in Houston. He was 85 at the time of death and had been largely out of the public eye for the past seven years or so after suffering a stroke. The Houston Chronicle story on his life is here.

Bentsen was a genuinely charming man and successful businessman who often seemed somewhat out of place in the dog-eat-dog world of politics in Texas and Washington. His political mentor was former legendary House speaker, Sam Rayburn, but Bentsen was not particularly close to the other Texas political icon of the 1950's and 60's, former President Lyndon B. Johnson. Most of Bentsen's political career occurred after Johnson had left office.

Bentsen was a member of the traditional part of the Texas Democratic Party that dominated Texas politics for over a century after Reconstruction, and he re-entered politics in the early 1970's to run against the standard-bearer of the more liberal faction of the party, Ralph Yarborough. Thus, Bentsen often sided with Republicans in political decisions, although he resisted the temptation to switch to the Republican Party as his Texas Democratic Party contemporary, former Texas Governor John Connally, did in the early 1970's.

Bentsen's popularity in Texas is perhaps best reflected by the fact that he won the 1988 Senate race by a large margin despite the fact that the Dukakis-Bentsen Presidential ticket lost the state to the Bush-Quayle ticket. Although Bentsen was able to help stem the demise of the Texas Democratic Party for a couple of decades, he and others in his faction of the party ultimately lost the war as the Republican Party began dominating Texas politics about the time that Bentsen retired from politics in 1994. After his retirement, Bentsen prepared an oral autobiography of his political and business career, which will remain confidential for five years after the date of his death.

A memorial service for Bentsen is tentatively scheduled for next Tuesday at First Presbyterian Church in Houston after a private graveside service at Forest Park Lawndale Cemetery.

Posted by Tom at 4:32 AM | Comments (7) | TrackBack (0)

May 23, 2006

Jamie Olis' nightmare continues

The ever-alert Doug Berman notes that, in an expected decision, the Fifth Circuit Court of Appeals has denied Jamie Olis' appeal of U.S. District Judge Sim Lake's denial of Olis' motion for release pending the Judge's re-sentencing of Olis after the Fifth Circuit late last year reversed Olis' original 24-year sentence and ordered re-sentencing. Although yet another unfortunate decision for Olis and his family, the Fifth Circuit traditionally defers to the trial judge in regard to such matters, particularly when the judge is as well-regarded as Judge Lake.

Judge Lake has scheduled a status conference in regard to Olis' resentencing for June 9th as the Justice Department continues to drag its feet in regard to the re-sentencing hearing. With the Lay-Skilling case finally coming to a close, my sense is that Judge Lake will use that conference to put the Olis resentencing on a fast track.

Posted by Tom at 8:35 AM | Comments (0) | TrackBack (0)

More on the Barbaro injury

My bright niece, Marianne Kirkendall, is entering her final year as a graduate student in veterinary medicine at Iowa State University in Ames. As you might expect, Marianne -- who has always loved horses -- is all over Kentucky Derby winner Barbaro's horrific leg injury, so she passes along this fascinating Barbaro website page for the New Bolton Center, which is the University of Pennsylvania facility where Barbaro's injury is being treated and one of the premier equine clinics in the country (a NY Times article on the same subject is here). Marianne comments on Barbaro's surgery:

The top picture on the left shows them lifting Barbaro out of the recovery pool. Equine surgery is obviously made very difficult given the size of horses, and their "flighty" nature. Cranes are used to lift them on and off of surgery tables. I've gotten to help with several surgeries, and the induction and recovery from anesthesia can get every bit as complicated (and even more exciting!) as the surgery itself!

Most equine hospitals recover horses by putting them into a dark, padded stall and using a tail rope to help them get up when they are ready. The anesthesiologist literally sits with the horse until they start trying to get up, then must leap out of the stall to avoid the commonly flailing hooves! Unfortunately, horses recovering from anesthesia sometimes break their legs as they wake up and try to stand before they are ready. This pool technique is a newer method of recovery that only a few clinics have as yet, but is really neat! Cool to see it in action!

Posted by Tom at 7:47 AM | Comments (0) | TrackBack (0)

More on the corporate crime lottery

Amidst an overwhelmingly negative media drumbeat, former Enron executives Ken Lay and Jeff Skilling await a jury verdict that could send them to prison for most of the rest of their lives. Meanwhile, in Amsterdam, such matters are handled a bit differently:

The executives in charge of the Dutch retailer Royal Ahold when it plunged into a financial scandal were convicted of fraud on Monday but were sentenced to a fine and no prison time, as judges found they bore little criminal guilt.

The former chief executive, Cees van der Hoeven, and the former chief financial officer, Michiel Meurs, were fined 225,000 euros ($288,000) each and they were given nine-month suspended sentences.

The verdict comes more than three years after Ahold — which operates grocery stores around the world, including the Stop & Shop and Giant chains — went to the brink of bankruptcy in February 2003.

An earlier post on the Royal Ahold case is here.

Meanwhile, if the prospect of fairness for Lay and Skilling is simply too difficult to fathom, then how do you square the resolution of the Ahold case with that of this case, this case, or this one?

So it goes as an unattractive cauldron of resentment towards business and wealth continues to produce the lottery-style results of prosecuting corporate crime in America.

Posted by Tom at 7:11 AM | Comments (0) | TrackBack (0)

Closing arguments in the first Enron Broadband re-trial

Inasmuch as I had a couple of hearings yesterday in federal court, I was able to slip in and watch most of the closing arguments of the Enron Task Force's case against former EBS CFO Kevin Howard (picture on the far left) and former EBS accounting director Michael Krautz. Based solely on the closing arguments -- which are not always a good indicator of how the evidentiary phase of the trial went for either party -- my sense is that acquittals of both men are likely.

Call the Howard-Krautz part of the Enron Broadband re-trials the "Nigerian Barge II case." As with its basic theory in that case, the Enron Task Force in this one contends that Howard and Krautz engineered a series of secret side deals that undermined the validity of Enron's accounting treatment for an otherwise valid joint venture deal with a small computer outfit named nCube. The purpose of the joint venture was to monetize Enron's video on demand ("VOD") contract with Blockbuster, which Enron used to buttress its earnings in a couple of quarters to the tune of around $100 million during 2000-2001. Although there is nothing wrong such a deal in theory, says the Task Force, the deal was a sham because nCube's equity in the joint venture was never at risk because Enron orally promised to take nCube out at a stated rate of return, Enron controlled the joint venture and the parties operated no real business in the joint venture. The Task Force contends that Howard and Krautz were at the center of the sham deal.

Unfortunately for the Task Force's theory of the case, nCube lost all of its equity in the joint venture and substantial evidence exists that the joint venture was not a sham. Sure, nCube wanted Enron to buy nCube's interest relatively quickly after the deal was consummated, but Enron auditor Arthur Andersen advised that such a purchase would undermine Enron's accounting for the deal and so, Enron undertook to find a third party buyer for nCube's interest, which never panned out. As far as I could tell from the closing arguments, the documentary evidence that the Task Force used during the trial to support its charges was equivocal at best and constituted primarily emails and memos in which Enron and nCube personnel discussed what they could and could not do in regard to the deal to preserve Andersen's blessing for accounting purposes.

Assistant U.S. Attorney Jonathan E. Lopez of Washington, D.C. handled the first part of the Task Force's closing argument and, although competent, it was a real snoozer. As is typical of Task Force arguments these days, Lopez opened by contending that this was really a simple case of lies and deception by Howard and Krautz, and then proceeded to bludgeon the jury with a very unsimple-like analysis of the prosecution's theory of the case. During Lopez's argument, I noticed at least three jurors nodding off to sleep and the attention of most other jurors waned after a half hour or so of the hour-and-a-half argument. Task Force prosecutor Van S. Vincent of Nashville, who is the lead prosecutor in this trial, handled the rebuttal portion of the Task Force's closing and, while more seasoned than Lopez in his presentation, largely covered the same material as Lopez. Although I didn't notice any jurors nodding off during Vincent's argument, my sense was that they were not particularly engaged.

The highlight of the day was the closing argument that Houston-based criminal defense lawyer Jack Zimmermann gave on behalf of Howard. Using the court's jury instructions and excerpts of specific testimony by the Task Force's main witness as a framework for his presentation, the folksy and articulate Zimmerman paced back and forth in front of the jury box in his trademark cowboy boots as he persuasively argued that the Task Force's case does not come close to meeting its burden of establishing guilt beyond a reasonable doubt, particularly on the key element of the defendants' intent. The jurors were transfixed by Zimmerman, who is one of several protégés of famed criminal defense attorney Richard "Racehorse" Haynes who make Houston's criminal defense bar one of the best in the country. By the time that Krautz defense attorney Barry Pollack of Washington, D.C. concluded his well-organized and impassioned argument that characterized the Task Force's case as a parody, my sense was that the jurors were ready to begin deliberations and that may explain their relative lack of enthusiasm for Vincent's rebuttal.

Although its impact on jurors is unclear, the most telling moment in the closing arguments occurred when Task Force prosecutor Lopez dealt with the key contradiction in the Task Force's case -- i.e., that nCube's equity in the joint venture was not at risk, but it nevertheless lost all of that equity. In an analysis that speaks volumes about the utter lack of business law-perspective that has permeated each one of the Enron Task Force's prosecutions, Lopez beguilingly contended with a straight face that the reason why nCube lost all of its investment in the joint venture was that Enron went bankrupt, not because Enron wouldn't have ultimately bought out nCube had it remained solvent. In the Enron Task Force's rather odd world of commercial transactions, actually experiencing the risk of insolvency apparently does not equate with "at risk."

Thus, based solely on closing arguments and in view of the upcoming holiday weekend, it would not surprise me if this jury makes short work of this particular case. Howard and Krautz -- both of whom testified during the trial -- are courteous and soft-spoken family men who did not make the big-money in Enron stock sales that their former Enron Broadband co-defendants made. Based on what I saw and heard during closing arguments, my sense is that, under normal circumstances, it would be extremely difficult for this female-dominated jury to send these two men to prison. But, as we all know, cases involving the social pariah Enron are anything but normal, so stay tuned.

Posted by Tom at 4:24 AM | Comments (2) | TrackBack (0)

May 22, 2006

Barbaro's injury

This NY Times article provides an excellent analysis of the prospects for recovery of Kentucky Derby champion Barbaro, who suffered a career-ending leg injury during the early stages of the Preakness Stakes this past Saturday afternoon.

The bottom line -- this beautiful animal has only about a 50-50 chance of recovering from the injury.

Posted by Tom at 6:57 AM | Comments (0) | TrackBack (0)

Weil Gotshal settles the Fashion Boutique case

As predicted here almost two years ago, New York-based Weil, Gotshal & Manges settled during the latter stages of an ongoing trial the malpractice claims levied against the firm by the owners of a small New Jersey based retail clothing outlet, according to this Law.com ($) article. The colorful case -- which was prompted by Weil Gotshal suing their former clients for $2.7 million in fees -- was the subject of this earlier NY Sunday Times article.

Settlement terms were not disclosed as Weil Gotshal released a statement saying that it "settled despite its confidence in the trial outcome to avoid the cost of what would have been an inevitably long appeals process."

Posted by Tom at 5:52 AM | Comments (0) | TrackBack (0)

The issues involved in the Milberg Weiss indictment

The indefatigable Walter Olson, senior fellow at the Manhattan Institute for Policy Research and editor of the popular blawgs Overlawyered.com and PointOfLaw.com, chimes in today with this Wall Street Journal ($) op-ed that provides a fine overview of the key issues raised by the Milberg Weiss indictment. Olson's op-ed runs along side this WSJ ($) editorial that also comments on the Milberg Weiss indictment.

In reviewing the issues raised by the indictment, Olson notes the irony of Milberg Weiss being indicted for allegedly paying illegal kickbacks when Milberg Weiss has profited from making similar accusations in a large number of its class action securities fraud cases over the years:

Milberg Weiss lawyers have been in the forefront of efforts to define kickbacks broadly and punish them with rigor. The firm's Web site boasts that it "has sued major providers of private mortgage insurance for kickback violations, resulting in substantial settlements." Melvyn Weiss and others at the firm have expressed indignation at, and filed lawsuits over, alleged kickbacks in the contexts of Wall Street initial public offerings, mutual fund sales, insurance brokerage commissions and doctors' prescribing of pharmaceuticals.

Meanwhile, although no great fan of many of the class action securities fraud lawsuits that Milberg Weiss has pursued, Larry Ribstein remains troubled by the indictment:

We (and I) may not like Milberg’s business. But the class action part of it was one enabled by legal rules. The right way to deal with the problems of this business is to change the rules, as I’ve argued for securities class actions in my Fraud on a Noisy Market. When we criminally condemn firms like Milberg because we don't like their business, we set a precedent for other firms in controversial lines of work -- e.g., Drexel Burnham.

More seriously, the power to criminalize a firm puts a potent tool in the government’s hands to get the firm to cooperate in sacrificing the rights of criminal defendants. Here the cure seems patently worse the disease. The questions are no less in Milberg than in KPMG just because Milberg was in an unpopular line of work.

My main concern about the Milberg Weiss indictment is similar to Professor Ribstein's. Although unclear to what extent, the criminal investigation of Milberg Weiss was at least facilitated -- if not initiated -- by opposing forces in the class actions that Milberg Weiss prosecuted. Why did these opponents not pursue an investigation of the firm in the particular class action cases in which Milberg Weiss was counsel for the class and illegal kickbacks were suspected? Broad discovery rights in those cases would have probably uncovered valuable evidence relating to the alleged kickbacks, and the defendants in those cases likely would have benefited from such an investigation. If such an inquiry had uncovered illegal kickbacks, then Milberg Weiss would have been subject to sanctions and disgorgement of fees by the trial court, which also could have referred the matter to the Justice Department for criminal investigation if the court believed that a crime had occurred.

The Seymour Lazar part of the Milberg Weiss investigation is a case in point. In connection with his indictment in California, lawyer Lazar denied he had conflicts of interest that compromised his status as lead plaintiff in certain Milberg Weiss class actions or that the payments he received from the firm were illegal. According to Lazar, he took litigation "ideas" to Milberg Weiss, which paid referral fees to Lazar's lawyers, including the firm of the other lawyer who was indicted with Lazar. Lazar's lawyers in turn allocated some of the firm's referral fees from Milberg Weiss to pay Lazar's personal bills from real-estate lawyers, appraisers and other professionals. Inasmuch as it's not unusual for lawyers to pay referral fees, Lazar contends that he had no reason to think that his arrangement with Milberg Weiss was improper and that the firm did not pay him to be a class representative in any of the class actions.

Now, Lazar's situation is different from that of Howard Vogel, whose recent plea deal appears to be the impetus for the Milberg Weiss indictment. Moreover, it's not at all clear that Lazar's explanation of his arrangement with Milberg Weiss would have passed muster with the courts that approved the firm's fees without disclosure of that arrangement. But doesn't it make more sense to have the arrangement between Lazar and Milberg Weiss vetted through the prism of the federal district courts that were allegedly misled about the Milberg Weiss' arrangements with class representatives before the Justice Department hauls off and starts prosecuting a law firm out of business?

Posted by Tom at 4:49 AM | Comments (0) | TrackBack (1)

First Enron Broadband re-trial goes to the jury today

Almost ignored amidst the media's unprecedented focus on the Lay-Skilling trial, the first re-trial in the Enron Broadband case will go to the jury today after the prosecution and defense attorneys complete their closing arguments, which are expected to last most of the day. The trial is taking place in the courtroom of U.S. District Judge Vanessa Gilmore in Houston's federal courthouse just down the hall from where the Lay-Skilling jurors resume deliberations this morning.

As noted earlier, the defendants in this first re-trial are Kevin Howard, the former Enron Broadband ("EBS") CFO, and Michael Krautz, the former EBS senior accounting director, who are being tried together on four counts alleging that they conspired to commit wire fraud and falsify books and records in connection with a sale of video-on-demand profits. The charges relate to a April 2000 structured finance transaction known as Project Braveheart that was designed to allow EBS to monetize a 20-year agreement with Blockbuster Inc. EBS' agreement with Blockbuster provided that Blockbuster would obtain digital rights to films that EBS would encode and stream over its network to customers' homes.

The government contends that Howard and Krautz understood the accounting rules relating to the structured finance transaction, but that they intentionally violated those rules and withheld key information from Enron's auditors so that the Braveheart transaction could be booked and allow Enron to post about $110 million in revenue in 2000-01. Howard and Krautz assert that the sale was an entirely legal and creative structured finance transaction that allowed EBS to generate earnings in an industry that was undergoing a deep shakeout amidst intense competition and fast-changing technology.

As noted earlier here, the Enron Broadband case is a part of a troubling trend in the post-Enron era in which individuals involved in legitimate structured finance transactions are targeted for indictment and prosecution, resulting in yet another disincentive for those individuals and their companies to engage in innovative risk-taking that generates wealth and jobs.

Posted by Tom at 4:14 AM | Comments (0) | TrackBack (0)

May 21, 2006

A real hero's story

Following on this post from a couple of months ago on Virginia Postrel's donation of a kidney to a friend, don't miss Virginia's inspiring Texas Monthly ($) article on the experience.

Interestingly, the most important part of Virginia's successful donation was her stubborness in going through with it:

Most important, it turned out, I had the right personality. Donating a kidney isn’t, in fact, a matter of just showing up. You have to be pushy. Unless you’re absolutely determined, you’ll give up, and nobody will blame you—except, of course, the person who needs a kidney. When I went to see my Dallas doctor for preliminary tests, the first thing she said was “You know, you can change your mind.”

To me, giving Sally a kidney was a practical, straightforward solution to a serious problem. It was important to her but not really a big deal to me. Until the surgery was scheduled—for Saturday, March 4—and I started telling people about it, I had no idea just how weird I was.

Normal people, I found, have a visceral—pun definitely intended—reaction to the idea of donating an organ. They’re revolted. They identify entirely with the donor but not at all with the recipient. They don’t compare kidney donation to other risky behavior, like flying a plane or running 31 miles to the bottom of the Grand Canyon and back, as my brother did last summer.

What a gal!

Posted by Tom at 7:24 AM | Comments (2) | TrackBack (0)

Be careful cross-examining Bill Buckley

William F. Buckley, Jr. tells a good anecdote about the perils of cross-examination in this NRO Online op-ed. In commenting about a New York criminal case involving a potential enhanced sentence because of the defendant's alleged use of the "N-word" in beating up the victim, Buckley passes along his own experience as a defendant in a case involving his use of an allegedly derogatory word:

Some years ago I was a defendant in a lawsuit brought by a creepy fascistic outfit (they are now out of business), and the question before the jury was whether I and the magazine I edited were racist. The attorney had one weapon to use in making his point, namely that we had published an editorial about Adam Clayton Powell Jr. when he made a terminally wrong move in his defense against federal prosecutors. The editorial we published was titled, "The Jig Is Up for Adam Clayton Powell Jr.?"

On the witness stand I argued that the word "jig" could be used other than as animadversion. The feverish lawyer grabbed a book from his table and slammed it down on the arm of my chair. "Have you ever heard of a dictionary?" he asked scornfully, as if he had put the smoking gun in my lap. I examined the American Heritage College Dictionary and said yes, I was familiar with it.

"In fact," I was able to say, opening the book, "I wrote the introduction to this edition."

That was the high moment of my forensic life. And, of course, the dictionary establishes that the word “jig” can be used harmlessly.

Posted by Tom at 6:15 AM | Comments (0) | TrackBack (0)

May 20, 2006

The true cause of rising medical malpractice premiums

Alex Tabarrok of Marginal Revolution fame is studying the causes of rising medical malpractice premiums, which is a subject explored in the recent book that he co-authored with Eric Helland, Judge and Jury: American Tort Law on Trial (Independent Institute, 2006).

In this excellent Wall Street Journal ($) op-ed, Professor Tabarrok takes on the canard that rising medical malpractice premiums are primarily the result of price-gouging by greedy insurance companies:

On its face, price gouging is a peculiar explanation for recent increases in insurance premiums. Is greed new to the world? Were insurance companies followers of Mother Teresa just a few years ago? If greed and gouging are the explanations for rising premiums, why did the St. Paul group -- one of the nation's largest suppliers of medical malpractice insurance -- pull out of the market in 2001? Were the profits from all that gouging just too much for St. Paul's guilty conscience? And consider that almost half of doctors are insured through mutual, i.e., doctor-owned, insurance companies. Are the doctors gouging themselves?

Professor Tabarrok then cogently explains the primary element in how insurance companies establish medical malpractice premiums -- i.e., attempting to predict the future:

Over the long run, insurance companies must cover their costs, so increases in premiums track increases in tort awards. As we show in our study, during the last 30 years every dollar increase in awards has led to a dollar increase in premiums. But tort awards are very difficult to predict because past awards tell us very little about future awards. Insurance companies, therefore, have a difficult job: They must predict future awards based on just a handful of the most recent awards. Was the latest multimillion dollar award a signal of permanently higher costs, or was it just a blip? Is tort reform working or were the more reasonable awards of the last year just a pause in the long upward trend?

Given the difficulty of forecasting awards, it's no surprise that insurance companies sometimes make mistakes. As a result, insurance companies can price premiums based upon a projection of future awards that are too low.

You never hear critics of the industry complaining of low prices, but we now know that prices in the 1990s were not high enough to cover the increase in tort awards. Recent increases in premiums are simply a belated recognition of the reality of what appears to be permanently higher medical malpractice awards. Since the insurance cycle is a function of the uncertainty of tort awards, not an independent cause of higher prices, the best way to dampen premium variation is to make tort awards more predictable.

Of particular interest to Texans is the effect that Texas' dubious system of electing judges has on medical malpractice premiums:

States with partisan elected judges, for example, have medical malpractice awards per claim that are $36,000 higher than in other states.

Professor Tabarrok concludes with this common sense advice:

The way to fix broken medical malpractice systems . . . is to address the underlying problems of the tort system -- whether through federal statute, state legislation or judicial oversight. Pointing fingers at the insurance industry for price gouging or mismanagement may help trial lawyers block reform, but these accusations make little sense and are not supported by the data. As Daniel Patrick Moynihan famously said, "While all men are entitled to their own opinions, they are not entitled to their own facts."

Read the entire op-ed. Definite clear thinking.

Posted by Tom at 7:05 AM | Comments (3) | TrackBack (0)

May 19, 2006

Natural gas prices continue to fade

Amidst the concern over relatively elevated crude oil prices, natural gas prices continued their slump yesterday after governmental data showed volumes in gas storage rose more than expected last week. The news pushed futures contracts for June delivery down to $5.997 per million British thermal units on the New York Mercantile Exchange, the first time that the price for such contracts had dipped under $6 per BTU since February, 2005. Gas futures are now down 47% for the year and 65% below their December high, which was a Nymex record.

The Energy Information Administration reported yesterday that total gas in underground storage rose by 91 billion cubic feet, which is almost eight billion cubic feet more than previous estimates. Volumes in storage as of May 12 totaled 2.08 trillion cubic feet, the highest ever for this time of year. Some analysts are speculating that the U.S. could actually run out of storage space if the current trends continue.

Still no word from Bill O'Reilly on how the big oil and gas companies allowed such a situation to occur.

Posted by Tom at 6:39 AM | Comments (1) | TrackBack (0)

Shoe drops on Milberg Weiss

As anticipated by this post from earlier this week, a federal grand jury indicted Milberg Weiss Bershad & Schulman yesterday in Los Angeles for allegedly funneling kickbacks to plaintiffs in dozens of securities class-action cases over a 20-year period. The indictment represents the first prosecution since the Enron Task Force's dubious decision to prosecute Arthur Andersen out of business in 2002 that the Justice Department has charged a major firm with a crime because of the alleged misconduct of principals in the firm. Previous posts on the longstanding investigation of Milberg Weiss are here.

The indictment probably means sayonara for the firm, although the firm's partners are initially saying that they will continue operating while fighting the charges. The indictment came on the heels of intense negotiations between the firm and the Justice Department over a proposed deferred-prosecution agreement under which the firm would have operated under a court-appointed monitor, admitted responsibility and paid a fine of about $40 million. However, negotiations apparently broke down over the DOJ's demand that the firm waive its attorney-client privilege, a demand which is becoming de jure these days in the government's criminalization of business.

Inasmuch as it is generally illegal for a class representative to be paid more than what other members of the class receive from the lawsuit (except for reimbursement of out-of-pocket expenses), the indictment charges that the firm paid more than $11 million in kickbacks to class action representatives and disguised those payments as legitimate referral fees or other legal payments. The indictment includes counts alleging conspiracy, racketeering, mail fraud, money laundering and filing of false tax returns, and includes charges against two of the firm's more prominent partners -- David Bershad and Steven Schulman -- for allegedly being directly involved in making secret payments to plaintiffs.

Interestingly, the indictment alleges that Bershad used cash from a safe in his credenza to pay kickbacks to plaintiffs. Gee, I thought that only big-time college football and basketball coaches engaged in that sort of thing with their star players. ;^)

Posted by Tom at 5:09 AM | Comments (0) | TrackBack (1)

Lay-Skilling, Week Sixteen

Week Sixteen (prior week summaries here) of the corporate criminal case of the decade was closing argument week, and the lawyers used the full 12 hours over two and a half days that U.S. District Judge Sim Lake allocated for such argument. As with opening arguments, lawyers and the mainstream media tend to overestimate the importance of closing arguments, which really are more about reinforcing the views of jurors — particularly the leaders on the jury — rather than actually changing any juror’s opinion about the case. Having said that, even though cases are rarely won during closing argument, cases can be more easily lost during closing if an attorney gets careless. I wasn’t able to attend the Lay-Skilling closing arguments because of prior commitments, but my sense from reading the transcript is that none of the lawyers who participated in closing arguments came close to losing the case for their client.

Assistant U.S. Attorney Kathy Ruemmler handled the first part of the Enron Task Force’s closing, and — although competently presented — I found reading her argument to be quite tedious. Indeed, Ruemmler's delivery was so slow in the initial hour and a half of the presentation that Judge Lake suggested at the lunch break (outside the presence of the jury, of course) that she might want to pick up the pace a bit. Rather than focusing in on specific allegedly false statements or specific testimony of witnesses, Ruemmler relied more on generalities and provocative words — Lay and Skilling’s statements were “lies,” they were “arrogant,” their testimony was “ludicrous” or “patently absurd” or "outrageous" while favorable testimony of Task Force witnesses was “compelling.” Given that virtually every factual issue relating to the Task Force charges was hotly-contested during the trial, my sense in reading the transcript was that such outspoken declarations did not mesh particularly well with Ruemmler’s presentation of evidence relating to those contested issues.

A friend who attended Ruemmer’s closing noted that one spectator dozed off in the middle of her presentation and that several of the jurors appeared to be bored stiff. Probably sensing the chloroforming effect that she was having, Ruemmler after lunch tried to liven things up a bit by punctuating her remarks with hand claps, although one can only wonder whether that might have seem contrived in comparison to the rather bland presentation. The Financial Times had the best observation about the performance in commenting that “trial-weary jurors” would likely “enjoy a little variety” when Lay lawyer Mike Ramsey delivered his closing argument, noting that Ramsey “missed most of the trial while recovering from heart surgery. It is hard to say whether the jurors or Ramsey have had the more pleasant experience.”

Upon reflection, there may be a couple of valid reasons for Ruemmler’s curious approach. First, the Task Force may gauge that it’s far ahead with the jurors in what is a fundamentally weak case and thus, a rather bland closing argument reduces the risk of a mistake that could lose that perceived advantage. Moreover, Ruemmler was the Task Force prosecutor who gave the over-the-top closing argument in the odious 2004 trial of the Nigerian Barge case (which appears to be currently unraveling on appeal) and compounded that dubious performance by absurdly calling for the immediate imprisonment of Merrill Lynch executive Daniel Bayly during his subsequent sentencing hearing in which U.S. District Judge Ewing Werlein ignored the Task Force's proposed sentence. Inasmuch as certain inflammatory statements made by Ruemmler during closing argument have been raised by the four Merrill Lynch executives in the appeal of their convictions, Ruemmler may have chosen a more vanilla approach in Lay-Skilling to avoid a similar appellate attack.

Despite the restrained nature of the presentation, Ruemmler still hammered on two central themes that the Task Force has emphasized while presenting its case — (i) the real presumption in the case (“Enron went broke, Lay and Skilling made a lot of money in leading the company, and thus, they must be guilty of some crime”), and (ii) the testimony of the supposedly numerous number of former Enron executives who testified against Lay and Skilling as cooperating witnesses of the Task Force. As I've noted many times during this trial, that latter theme is particularly disingenuous given the Task Force’s icing of dozens of former Enron executives who would have provided exculpatory testimony for Lay and Skilling, including six such witnesses for whom the Task Force specifically declined the Lay-Skilling team’s request for immunity toward the end of the defense’s case.

Reasonable people can differ over whether criminalizing corporate agency costs is sound public policy, but there is no serious question that the Task Force’s effective preclusion of exculpatory testimony for Lay and Skilling from this trial is a serious affront to the principles of justice and the rule of law upon which our criminal justice system is based. The Task Force prosecutors' repeated references during closing on the large number of Enron executives/cooperating Task Force witnesses who testified against Lay and Skilling — intimating “how could all these people be lying?” — only underscores the fact that this jury should not have been prevented from hearing from the many former Enron executives who would have provided exculpatory testimony for Lay and Skilling. The fact that this key issue in the trial has been largely ignored outside a few other blogs is a startling reflection of the fact that a mainstream media that has already convicted Lay and Skilling in the court of public opinion is not ready to confront the grave implications of such prosecutorial abuse, even when such abuse is now regularly emerging in other cases.

As expected, Daniel Petrocelli’s performance on behalf of Skilling was the most entertaining of the closing arguments. Indeed, Petrocelli performance in this trial — win or lose — has cemented his reputation as one of the best trial lawyers in the U.S., and his closing argument reflected that status. Juggling passion with keen insight and genuine self-deprecation, Petrocelli skillfully challenged the Task Force’s entire theory of the case while using the specific language from the Task Force’s indictment juxtaposed against specific excerpts of testimony from various Task Force and defense witnesses. The fact that the Task Force attempted to suppress use of the indictment during the trial (here and here) seemed to empower Petrocelli.

Particularly effective was Petrocelli’s dismemberment of the Task Force’s key conspiracy allegation, which the Task Force barely touched on during the trial:

Let me ask you a question, . . . Do you know when this conspiracy started? . . . You've heard the whole Government's case. They've given their closing argument. Do you know when [the conspiracy] started? Do you know what happened? What event started it? Was there a meeting? Was there some kind of conversation? Was -- what was there? When did it -- when did it happen? Where did it happen? Can you answer these questions?

By the way, if you hesitate -- if you hesitated, that's reasonable doubt. Right there. . . I can't answer these questions. I probably know this case better than anybody, I will immodestly say. Yes, some of my client's traits are rubbing off on me. I don't know when this conspiracy happened. I don't know who's in it. I don't know where it happened. I don't know how it happened. I can't tell you the foggiest thing about it. . . . How can that be? How can that be? How can we have gotten this far? How can we be closing the case and sending it to you and nobody knows where the conspiracy is?

Yet, that conspiracy allegation is the lynchpin upon which the Task Force used extensive hearsay testimony during the trial and kept out exculpatory testimony for Lay and Skilling. But for the Task Force designating those witnesses with exculpatory testimony as unindicted co-conspirators and prompting them to decline to testify on the basis of their Fifth Amendment privilege against self-incrimination, the testimony in this trial would have been dramatically different.

Petrocelli also hammered away at the presumption underlying the Task Force’s case:

Mistakes are not a crime. [Skilling] made a lot of mistakes. He said, "I should have sold those assets off in the international arena. I didn't do a good job. I miscalculated on broadband. I was a step behind. I should have better anticipated the collapse of the bandwidth market. I trusted Andy Fastow. If I knew now what I knew then, of course, there wouldn't be an LJM. I made mistakes."

Mistakes are not a crime. They may lead to liability in a civil case, which it felt like we've been in for three months; and God knows, he's been sued in 200 cases. If he made mistakes and it violates civil laws, then he'll have to deal with that; but this is a criminal case. Mistakes are not a crime.

Finally, Petrocelli explained why the credibility of the Task Force’s cooperating witnesses is suspect:

[Task Force prosecutors] talked about lies and choices. That's the theme of their case: lies and choices. Well, the Government, that applies to them, too. They had choices. . . If they really wanted to get the truth out of this case, they didn't have to use cooperators. That was their choice. If they wanted to use cooperators, they didn't have to make these deals with them. That was their choice. If they wanted to use cooperators, they didn't have to put off their sentencing. Not one of them has been sentenced. [. . .]

So Glisan doesn't make a deal at that time because he's not prepared to do everything they want him to do until he ended up in the hole in solitary confinement and then in hard prison with two convicts and a single toilet. And then that changed his mind. Then he got a chance to come out on furloughs, see his family, go to a camp. That's what happens to people. . . . it could happen to anybody, . . . It robs you of your free will. It's not right. [The prosecution] can do it. You don't have to accept it, though. You don't have to believe those witnesses. You can demand a higher quality of proof.

But as entertaining as Petrocelli’s closing was to read, the most surprising development of the closing arguments was the performance of the Lay defense team, which — along with Lay — has come under some heavy criticism in the media and the blogs during the trial. When I heard that Lay and his team had decided to have all four lawyers on the team do a part of the closing argument, I must admit that I first thought that such an unusual approach was a recipe for disaster.

However, I was wrong. Lay attorney Bruce Collins led off with a superb analysis of the charges against Lay, and again used the specific language in the Task Force’s indictment as a guide for the jury in comparing the actual charges against the testimony and the evidence. Collins is not blessed with Petrocelli’s panache (few are), but his closing was a clinically effective breakdown of the Task Force’s entire case against Lay. Mac Secrest — who performed admirably when forced at mid-trial to take on the lion share of the Lay defense when Ramsey was disabled by surgery — followed with an astute analysis of the Task Force’s cooperating witnesses, pointing out how their credibility is undermined by the very terms of their plea agreements and the substantial amount of time that the Task Force expended in rehearsing their testimony. Following Secrest, Chip Lewis’ gave his short, verbal assault on Task Force prosecutor John Hueston (“Don’t come to Houston, Texas and lie to us”), which seemed a bit over-the-top in reading it, but then the folksy Ramsey followed Lewis with a relatively short (12 minutes) and measured commentary on the nature of reasonable doubt and reminding the jurors that they, not the Task Force, are really who represent the United States in the courtroom.

Finally, Task Force director Sean Berkowitz finished the closing arguments on Wednesday morning with a fast-dash rehash of many of the same points that Ruemmler hit on Monday. Berkowitz's performance was workmanlike, but he has never seemed particularly enthralled with the Lay-Skilling indictment, which was prepared well before he joined the Task Force. During the trial, Berkowitz did not fare particularly well during the cross-examination of Skilling and seemed to struggle at times with some of the arcane business principles and practices that were involved in the case. Consequently, it’s really not surprising that he closed with the following analysis of what he thinks the case is about:

You [jurors] get the final word in this historic case. You get to decide whether [Lay and Skilling] told truths or whether they told lies. Black and white. I submit, ladies and gentlemen, that, when you consider all of the evidence, you will conclude beyond a reasonable doubt that these men lied. They withheld the truth. They put themselves in front of their investors. And I'm asking you to send them a message that it's not all right. You can't buy justice. You have to earn it.

Or were Lay and Skilling simply struggling on behalf of shareholders to put the best face possible on an innovative but admittedly highly-leveraged company with a booming and profitable trading operation that found itself in a fatal credit crunch when the commercial paper market dried up in response to public disclosure of Fastow’s financial shenanigans, the company’s relatively low credit rating, a falling stock price and the uncertainty of an anxious post-9/11 stock market?

Those two starkly different frameworks are essentially what the parties have presented to the jury during this trial. Which one the jurors choose to adopt will ultimately determine the outcome.

So, where does that leave us? The jury went home for the weekend after deliberating for a day and a half without any communication to Judge Lake. The betting markets continue to predict convictions of both men at around a 70% probability, although the bet on a Skilling conviction has not increased during the trial while the bet on a Lay conviction has risen markedly. The betting market is probably a reasonably good measure of the public’s attitude about the case after being deluged with mostly anti-Enron media reports for over five years now.

However, I continue to believe that that this jury’s verdict will depend largely on the leaders of the panel. If those leaders were predisposed to convict Lay and Skilling from the outset of the trial, nothing in this four month slog is likely to have changed their position. But if even one of those leaders is skeptical of the Task Force's methods or case, then the Task Force has not presented nearly a strong enough case to ensure convictions by any stretch of the imagination. If the leaders have doubts, then my sense is that a mix of acquittals and a hung jury on some counts — similar to what occurred in the first Enron Broadband trial — is a distinct possibility. The jury returns on Monday to deliberate and will do so through Thursday of each week until a verdict is reached. In the meantime, the Task Force and the Lay team began the trial yesterday of Lay on the charges relating to Reg U, which prompted Ramsey to comment awhile back "I thought Reg U was a tomato sauce." That case is being tried to Judge Lake without a jury and will likely conclude early next week. Judge Lake has already stated that he will not announce a verdict in that case until after the Lay-Skilling jury comes back with its verdict.

By the way, speaking of the Enron Broadband case, the first re-trial of that case is expected to go to the jury next week. Wouldn’t it be ironic if the jury in that trial decides the core issues relating to Enron’s Broadband unit differently from the way the Lay-Skilling jury decides those same issues? In the wacky world of criminalizing corporate agency costs, it could happen.

Posted by Tom at 4:00 AM | Comments (7) | TrackBack (1)

May 18, 2006

SEC rejects meaningful SOX reform

The Securities and Exchange Commission has chickened out on reforming implementation of one of the most costly and misdirected forms of business regulation in recent memory, the Sarbanes-Oxley legislation. The SEC press release is here and previous posts on SOX are here.

Larry Ribstein has followed closely and written extensively on this issue, and his post on the SEC's most recent punt is here.

Posted by Tom at 6:48 AM | Comments (0) | TrackBack (0)

"I still don't believe it"

This weekend is the 60th anniversary of the Bank of America Colonial Invitational Golf Tournament in Ft. Worth, so the sponsors have invited a number of the tournament's former champions to this year's event to celebrate the venerable tournament. One of those past champions is Austin's Ben Crenshaw, who passed along a funny story about the lengendary Ben Hogan, as reported in this Steve Campbell/Chronicle article.

Hogan, of course, was one of the best ball-strikers of all-time. A self-taught player who quit school as a youth to earn money as a caddie to supplement his impoverished family's income, Hogan was a taciturn and serious man who literally outworked his competitors by refining his skills on the driving range. Hogan lived in Ft. Worth most of his life, and ended up dominating his hometown tournament during the immediate post-WW II era, winning it five times (1946, 1947, 1952, 1953 and 1959) and coming in third as a 54 year-old in his second-to-last Colonial tournament in 1967. But for developing a case of the "yips" while putting in his later years, Hogan was such an extraordinary ball-striker that he likely would have continued to win golf tournaments well into his 50's.

Crenshaw, on the other hand, was a product of the post-WW II boom in wealth in the United States. Growing up in a relatively wealthy family during the 1950's and 60's, Crenshaw developed his game on the country club circuit of Austin and then as a collegiate golfer on the University of Texas' outstanding golf teams of the early 1970's. Although Crenshaw developed into one of the best putters in PGA Tour history and was a gifted natural athlete, he was never considered a particularly good ball-striker and often struggled with his golf swing during extended periods of his career.

With that backdrop, Campbell passes along the following story about Crenshaw meeting up with Hogan for the first time at the Colonial:

"[Hogan] could just say things that would stop you in your tracks," Crenshaw said. "And the way he said it — his voice was just real authoritative. He was so emphatic about everything he said. No wasted words."

Crenshaw said he was intimidated "every time" he was in Hogan's presence. . . .Once, after a scrambling round at Colonial, Crenshaw went to Hogan's home course, Shady Oaks, to practice. Hogan was hitting some balls on the range, so Crenshaw stopped to watch.

"What did you shoot?" Hogan asked.

"Sixty-five," Crenshaw answered.

Hogan said he was about finished, that Crenshaw could hit his clubs. It didn't take long for Crenshaw to determine Hogan had "the most unhittable clubs ever." Spraying shots left and right, Crenshaw inwardly sighed with relief when his clubs arrived on the range. To Crenshaw's embarrassment, he continued to spray the ball all over the lot.

"What did you say you shot?" Hogan said.

Sheepishly, Crenshaw said he'd posted a 65.

"Well, good luck to you, fella," Hogan said, departing.

Two-time champion Lee Trevino still laughs about a champions' dinner after Crenshaw's second Colonial victory. Sitting at the dais, Hogan pointed at Crenshaw and said to Trevino in a stage whisper, "There's no way he won twice here. There's just no possible way."

Crenshaw remembers seeing Hogan get in a car — a 1956 black Cadillac limousine — after the dinner. Hogan pulled up to Crenshaw, rolled down the window, said "I still don't believe it," and departed into the night.

Crenshaw's story reminded me of my favorite Hogan story, which was passed along to me years ago by one of Hogan's close friends, the late Claude Harmon. A young pro in the mid-1950's had just worked his way on to the PGA Tour for the first time. Although the young pro idolized Hogan, he could not bring himself to introduce himself to Hogan, who was a particularly intimidating presence while working and competing at golf tournaments.

One evening during a tournament, the young pro walked into a hotel bar near the course and saw Hogan sitting alone at the bar over a drink and a smoke. The young pro finally garnered the courage to approach Hogan and introduced himself to the legendary pro. Hogan was gracious in his response, which comforted the young pro, at least temporarily.

Because the young pro was struggling with his swing at that point and he prized Hogan's views on the golf swing, he used the chance meeting to ask Hogan a quick question about his swing.

"Mr. Hogan," said the young pro. "Could you help me? I find that I'm hitting everything to the left and I don't know why." The young pro took his stance and made several practice swings while standing next to Hogan at the bar. "As you can see, It seems like I'm doing everything right in my swing, but the ball still goes left. I would really appreciate it if you could give me some advice on how I might try to correct this problem?"

Hogan took a long, last draw on his cigarette and finished off his drink. As he rose from the bar stool to leave, he turned to the young pro:

"Yeah, I've got some advice for you," responded Hogan in his no-nonsense style. "Aim right."

Posted by Tom at 4:52 AM | Comments (0) | TrackBack (0)

May 17, 2006

Beware of the unofficial agent

Principal-agent law tends to evoke some rather odd outcomes in many Texas lawsuits, even those that involve application of the holder-in-due course principle.

In First Nat’l Acceptance Co. v. Bishop, 187 S.W.3d 710 (2006) (Tex.App.-Corpus Christi Feb. 9, 2006), Bishop sold her home to the Gonzalezes through a warranty deed with a vendor's lien in return for a note from the Gonzalezes secured by a mortgage on the property. Bishop then sold the Gonzalez note and mortgage to ANI, which in turn assigned the note and mortgage to FNAC, which was ANI's principal lender. In buying the Gonzalez note from Bishop, ANI did not disclose to Bishop its relationship with FNAC.

Alas, the risk of insolvency foiled Bishop's plan to monetize the Gonzalez note. After Bishop transferred the note and mortgage to ANI and ANI had assigned the note and mortgage to FNAC, ANI apparently went bust while owing big bucks to FNAC and before paying funds to Bishop for the note and mortgage (key tip to noteholders -- don't give up possession of the note until you are paid for it). So, Bishop canceled the deal with ANI and demanded the return of the note and mortgage. Of course, FNAC contended that it was a holder-in-due course of the Gonzalez note and mortgage, and refused to return them to Bishop. Meanwhile, FNAC posted the home for foreclosure, which I'm sure surprised the Gonzalezes, who were continuing to pay the note without knowledge of all these behind-the-scenes machinations.

After Bishop and the Gonzalezes filed suit against ANI and FNAC, the trial court concluded that ANI was FNAC’s agent for the closing on the purchase of the Gonzalez note from Bishop. Thus, the trial court imputed to FNAC all of ANI's knowledge regarding the closing of that purchase, including notice of ANI's failure to pay Bishop for the note. As a result, the trial court held that FNAC's holder-in-due course defense failed, that Bishop was the lawful owner of the note and mortgage, and that the transfer of the note and mortgage from ANI to FNAC was null and void. In the hyperlinked decision above, the appellate court agreed, concluding that sufficient evidence of a principal-agent relationship existed because FNAC had both the right to assign ANI's task and the right to control the means and details by which ANI accomplished the task of acquiring and purchasing promissory notes.

From purely a commercial law standpoint, the decision is a bad one, although clearly the equities of the situation favored Bishop and the Gonzalezes. FNAC probably would have been better off cutting a deal at least with the Gonzalezes and saving this fight for another day, but the appellate decision is nevertheless a good indicator of how even thin evidence of a principal-agent relationship in Texas courts will trump hard-and-fast rules of commercial law when the equities favor doing so. Hat tip to Greg Duhl for the link to the decision.

Posted by Tom at 5:43 AM | Comments (2) | TrackBack (0)

Thinking about defensive talent in baseball

Regular readers of this blog know that I'm a stathead when it comes to analyzing baseball, primarily because statistics provide a testable measure of a player's skills that are often misevaluated if left to anecdotal visual analysis of such characteristics as physical size, overall athleticism, fielding slickness, or speed of a pitcher's fastball. As noted in this earlier post (with links to other posts), the statistical analysis of baseball -- commonly known as sabermetrics -- has improved the evaluation of baseball players markedly over the past 25 years or so.

Despite that overall improvement in evaluating baseball talent, some skills remain difficult to quantify. While watching slick-fielding Stros SS Adam Everett make his first error of the season last night (after making 177 straight plays), I came across this Washington Post article on a new John Dewan book on fielding, which is one of those difficult skills to quantify. The article notes that Dewan is now making progress on the statistical analysis of the defensive skills of baseball players:

Are such skills measurable? Author John Dewan has come closer than anyone else to quantifying defense in his book "The Fielding Bible," but some skeptics suggest Dewan -- with an assist from noted stats guru Bill James, Dewan's business partner and friend -- has just tried to do something that can't be done. . .

Dewan's company, Baseball Info Solutions, employs "video scouts" who review every major league game, charting every batted ball and recording its direction, location, speed, type (line drive, fly ball, etc.) and result. Given any combination of those factors, a computer can spit out how frequently such a play is made by the average major leaguer at that position. . .

Some of the results are not surprising. Alfonso Soriano, for example, achieved a rating of minus-40 over the previous three years as a second baseman -- meaning he made 40 fewer plays than the average second baseman -- which ranked next-to-last behind only Bret Boone.

Interestingly, the WaPo article notes that the fielding skills of New York Yankees star SS Derek Jeter -- last season's American League Gold Glove winner at shortstop -- are wildly overrated:

James, for instance, spends 4 1/2 pages near the front of the book explaining why Houston's Adam Everett is a far superior shortstop to Derek Jeter. In fact, Jeter, according to James, was "probably the least effective defensive player in the major leagues, at any position" over the last three years.

Nevertheless, current Detroit Tigers General Manager Dave Dombrowski exemplifies how many in baseball continue to prefer relying on what they can see and touch on an anecdotal basis rather than the cold, hard facts:

"Some people think you can [quantify defense]. I don't really buy that myself," Dombrowski said. "I've looked at some of those new formulas. I'm not sure I would believe everything I've seen there. It's one of those things where, if you study [the players] yourself, you can have a better feel for those things than any numbers can tell you."

Posted by Tom at 5:04 AM | Comments (1) | TrackBack (0)

The Nelson Puddle

This earlier post pointed out the troubled nature of the four PGA Tour events in Texas these days and, picking up on that them, this Gary Van Sickle/SI.com article scours the Tour's latest attempt to make the rather pedestrian TPC Course at Four Seasons Resort and Club in Las Colinas a more challenging venue for Dallas' EDS Byron Nelson Championship. Commenting on the Tour's decision to install a lake on the left side of the 18th fairway of the course, Van Sickle notes:

The new hazard -- OK, it's not really big enough to be a lake, so let's call it the Nelson Puddle -- got a workout [in last week's EDS Byron Nelson Open] . . .

"The 18th hole was a pretty good hole," tournament host Byron Nelson said. "Now it's a great hole. Even if some players carry it over the water, they're still behind the trees. It's become a dogleg out to the right now."

With respect to the 94-year-old Mr. Nelson, everyone's favorite legendary golfer, the 18th is still not quite ready for its close-up. It's true, adding a water hazard has created a new element of danger. It is now a more difficult hole, yes. A great hole? Probably not. [. . .]

The reason the 18th isn't a great hole is that the water hazard, like a lot of the TPC course, looks artificial. It resembles a swoopy Las Vegas hotel pool with a fountain in the middle. Plus, not many water hazards naturally occur halfway up a hillside.

"It's a little contrived," veteran player Billy Andrade said. "It doesn't look like it fits. This course is kind of a funky layout anyway. I didn't like the look of it before, either. It doesn't change a player's strategy much. You didn't want to go left before, either."

As for the players who found the Nelson Puddle early in the tournament, he added, "Maybe they thought it was a mirage and didn't know it was there."

With the top PGA Tour players fleeing in droves from this week's Bank of America Colonial Invitational in Ft. Worth, the Texas swing of the PGA Tour continues its relentless descent into obscurity. When will Tour officials sit up and take notice?

Posted by Tom at 4:42 AM | Comments (2) | TrackBack (0)

May 16, 2006

Morgenson's nightmare continues

As noted in this previous post, University of Illinois law professor and prominent blawger Larry Ribstein has become NY Times business columnist Gretchen Morgenson's worst nightmare -- a sharp mind on business issues exposing the vacuous nature of her columns.

The subject of Professor Ribstein's latest analysis is Morgenson's column ($) this past Sunday, in which she addresses the rather tame fight for three board seats at the Acxiom Corporation, an information management company in Little Rock, Ark., where Acxiom's CEO, Charles D. Morgan and Acxiom's largest shareholder, ValueAct Capital, have squared off over ValueAct's allegations that Morgan has improperly billed Acxiom for his personal pursuits (such as sponsoring NASCAR teams and leasing a private jet from Morgan's company), stacked its board with pals and rejected its value-enhancing management ideas. Ms. Morgenson is particularly troubled by Morgan's company expense account, which is assuredly greater than Morgenson's at the Times:

Since 1999, for example, Acxiom has spent $7.6 million to sponsor a celebrity Nascar truck racing team and Grand American road racing team, both of which were controlled by Mr. Morgan and his son Rob until 2004, company filings show. Those documents also show that from 1999 to 2001, Acxiom paid a company owned by Mr. Morgan's wife, Susie, a former Miss Arkansas, more than $450,000 in fees for personnel staffing services. Mr. Morgan's son-in-law, Rodney Ford, has been involved with three companies that have sold services to Acxiom in recent years, including CognitiveData Inc., which has current dealings with Acxiom.

Then there's the jet, a Falcon leased by Acxiom from MorAir, a company owned by Mr. Morgan. In addition to all the trips to Mexico, flight records show that the jet has made eight trips to places where Grand American road races were held. Only four of those races were sponsored by Acxiom.

Since 1999, Acxiom shareholders have paid approximately $900,000 a year to lease the Falcon jet from Mr. Morgan's company, filings indicate. But only once, in the 2005 proxy, has the company noted any reimbursement by Mr. Morgan for the "incremental cost" of his personal jet use — $112,000 in 2004. Dale Ingram, a company spokesman, said that Mr. Morgan reimbursed the company for personal use of the jet in the amount of $83,000 in 2002, $79,000 in 2003, and $140,000 in 2005.

Mr. Morgan earned almost $1 million in salary and bonus last year. He owns about 6 percent of Acxiom's stock outstanding; in 2004, the year he bought and began developing the Cabo San Lucas golf course and resort property, he sold Acxiom stock worth more than $20 million. [. . .]

The company also noted that in addition to a rising stock price, it reported record revenue, earnings and free cash flow in the third quarter, its most recent.

But questions remain. Like where are the shareholders' race cars? And where are the shareholders' planes? Inquiring minds at Acxiom may want to know.

In sum, Morgenson contends that Morgan makes too much money and spends too much company money on car racing, private planes and relatives. Picking up on her "inquiring minds" reference, Professor Ribstein disassembles Morgenson:

So Morgenson has discovered agency costs, though perhaps a hat tip to Adam Smith would be in order. But she's forgotten a cardinal rule of journalism. After you write the entertaining story about the fat cat executive, you're supposed to come up with some simplistic solution. [. . .]

Morgenson almost stumbles over a solution. She notes that ValuAct had tried a tender offer but the board rebuffed it. What about a hostile tender offer? Now the offeree would be putting its cash on the line, and offering the shareholders tangible evidence that it's got something better – a higher stock price!

But you don't see Morgenson or her ilk ever going that route. In her drumbeat of weekly columns about one bad executive or the other, there's never a hint that the market for control might be a solution. The populists didn't like all the money Milken and his breed made in the 80's throwing out the overpaid executives. These barbarians weren't the nice, wholesome union/shareholder activists a proper journalist could bring home for dinner.

More fundamentally, it's not clear what Morgenson even wants. Does she want more profits – a better bottom line? Going too far down that road might not suit some of Morgenson's friends. Maybe it's all about the perks, not the management. Oddly, the ValueAct principal recognizes that Morgan "has created value for Acxiom shareholders." Should the shareholders then dump Morgan just because he cares too much about race cars?

One last question: is Morgenson the most insightful person the NYT, one of the world's leading newspapers, can get to fill its valuable Sunday business space? Inquiring minds want to know.

Posted by Tom at 6:48 AM | Comments (3) | TrackBack (0)

Ross Perot, Jr. v. Hughes & Luce

One of the enduring law firm-client relationships of the past generation in Texas has been that between the family of Dallas billionaire Ross Perot and the Dallas-based firm of Hughes & Luce, LLP. The firm long represented Perot personally and his various companies, including EDS while Perot was building the company into a computer-services giant before selling it to General Motors in the mid-1980's for $2.4 billion. The firm has continued to represent the Perot family over the years, including Ross Perot, Jr., who has become a wealthy real estate developer in the Dallas area.

Well, based on this Ft. Worth Star-Telegram article, it's safe to say that the Perot family's relationship with Hughes & Luce is at an end. Ross Perot Jr. is suing the firm in Tarrant County (Ft. Worth) District Court for malpractice in connection with the firm's allegedly botched handling of Perot's attempted acquisition of a mothballed $20,000 Air Force trainer jet for a planned aviation museum. Perot Jr. alleges in the lawsuit that the firm's handling of the failed purchase cost him millions in legal fees and exposed him to federal criminal charges.

How's that for a divorce petition?

The lawsuit stems from Perot Jr.'s attempt to purchase a Northrop T-38 Talon from the commissioners of Carbon County, Utah in order to donate the jet to the Alliance Heritage Museum, a nonprofit organization that for years ran an annual Fort Worth air show to raise money for a brick-and-mortar museum. Unfortunately, a private party such as the museum apparently cannot possess an Air Force jet and attempting to do acquire one exposes one to a federal criminal laws, a small detail that Perot Jr.'s lawsuit claims that Hughes & Luce initially overlooked. Then, after the expenditure of a couple of million in attorneys' fees, Perot Jr. contends that a couple of Hughes & Luce lawyers belatedly discovered that Perot and the Alliance museum project may have amounted to a criminal conspiracy to obtain aircraft parts illegally, which is a federal offense. Perot Jr. asserts that Hughes & Luce even researched their own legal exposure in that conspiracy and then billed him for that research.

Although a good offense is not usually the best defense in legal malpractice cases, Hughes & Luce is apparently ignoring that general rule in this particular lawsuit. Earlier this month, the firm filed an answer and a counterclaim for about $375,000 in unpaid legal fees that contends that Perot Jr. concealed crucial information from the firm, tried to hide government-owned property and -- contrary to the firm's advice -- even lobbied an active Air Force officer who Perot Jr. was recruiting for a job to help stop the criminal investigation of Perot Jr. According to the article, Perot Jr. spokesman Mark Palmer -- who used to work in investor relations for Enron (it's really a small world in Texas business, isn't it?) -- denied the firm's charges on behalf of Perot Jr.

Apparently, Perot Jr. and the firm attempted to mediate the dispute prior to the lawsuit being filed, so this one may have some legs. Stay tuned.

Posted by Tom at 5:58 AM | Comments (0) | TrackBack (0)

Milberg Weiss continues to reel

In a development that drips with irony, this NY Times article (see also here) reports that David Bershad and Steven Schulman -- two of the top partners in the class action plaintiffs firm, Milberg Weiss Bershad & Schulman LLP -- have left the firm as a part of a strategy to persuade the Justice Department not to go Arthur Andersen on the firm over its involvement in an alleged kickback scheme relating to cases that the firm pursued. Previous posts on the longstanding investigation of Milberg Weiss are here.

As the previous posts note, the investigation has focused on whether some of the class representatives in securities class-action cases that Milberg Weiss pursued were paid illegal kickbacks by the firm in addition to whatever damages they received as members of the class. Last month, a retired New Jersey mortgage broker named Howard Vogel -- who, along with his wife, was a class representative in about 40 Milberg Weiss class action cases -- pled guilty to accepting kickbacks from the firm in some of those cases. In pleadings in Vogel's case, prosecutors contend that Schulman and Bershad -- described in the pleadings as "partner D" and "partner C" -- assisted Vogel in taking $1.2 million in kickbacks for initiating securities-fraud class actions against Oxford Health Plans Inc. and Baan Co., both of which were were settled in 2003.

The irony in this situation is that Milberg Weiss is squarely in the crosshairs of a criminal investigation that is strikingly similar to the criminalization of agency costs that Milberg Weiss has profited from in connection with a large number of the firm's class action securities fraud cases over the years. Although an indictment and resulting meltdown of the Milberg Weiss firm will not have close to the negative economic impact of the Justice Department's similar destruction of Arthur Andersen, an indictment and resulting demolition of the firm -- particularly before even one of the courts in any of the firm's class action cases has determined that the firm did anything wrong in connection with its financial arrangements with class representatives -- would be a gross injustice. Milberg Weiss is simply a product of the rather confused theoretical basis of our system for handling class action securities fraud cases; prosecuting that firm out of business will not result in any meaningful reform in that system.

Update: Peter Lattman passes along Bershad's farewell memo to Milberg Weiss employees.

Posted by Tom at 4:35 AM | Comments (4) | TrackBack (0)

May 15, 2006

Is United Airlines bailing out on Chicago?

Long-suffering United Airlines' first quarter of operations after emergence from its three-year hike through chapter 11 was not particularly impressive. The Chicago-based carrier reported a loss of $306 million (excluding a one-time, emergence-from-chapter 11 accounting gain) that compared with a net loss of $302 million a year earlier (also excluding reorganization items). Revenue for the quarter rose 14% to $4.47 billion from $3.92 billion a year earlier.

Despite that desultory performance, United is already playing the professional sports franchise game of threatening to move its long-time Chicago-area headquarters to friendlier (and presumably better subsidized) environs, such as Denver. Although one is tempted to suggest that Chicago might be better off by saying "good riddance" to the troubled airline, late-night talk show host Conan O'Brien observed late last week that Chicago really doesn't have much to worry about:

"United Airlines might be leaving the city of Chicago. The good news is that they will be leaving from O'Hare so they will not depart for another six years."

Posted by Tom at 5:46 AM | Comments (1) | TrackBack (0)

A new way of training a Triple Crown champ?

Kentucky Derby winner Barbaro is the latest hope to become the first winner of horseracing's Triple Crown since Affirmed in 1978. If he does, this NY Sunday Times article reports that the unusual training regimen that his owners have adopted for Barbaro may harken a new standard in training 3-year-olds for the demanding trio of races:

[Barbaro trainer Michael] Matz says he thinks he can succeed where six horses in the last nine years, from Silver Charm to Smarty Jones, failed after coming so close to horse racing immortality. He has thrown out a regimen that has been regarded by trainers as commandments etched in stone, opting instead for a new schedule, forged by his own personal setback and inspired by a brilliant colt.

While most trainers organize training to maximize fitness and build race readiness, Mr. Matz has given Barbaro an unusual amount of rest between races in his budding career. Trainers usually prefer to have their horses experienced in having dirt kicked in their face, maneuvering through crowded fields and reacting to adversity before they run in the Triple Crown races, beyond being in shape.

Barbaro, though, ran only five times before winning the Derby, and started his career only when Mr. Matz decided he was ready, in October, relatively late for a horse with Triple Crown ambitions. [. . .]

In recent years, Mr. Matz has watched as six horses, weary from their Triple Crown campaigns, have fallen short.

As a group, those six horses competed in an average of 8.5 races before the Derby, and an average of 3.8 of those races were as 3-year-olds, usually in the 12 weeks before the first Saturday in May. Bob Baffert trained three of those horses, and two — Silver Charm and Real Quiet — fell three-quarters of a length and a nose short from completing the sweep in the grueling mile-and-a-half Belmont Stakes. Eking out those last few gallops from a tired horse in the Triple Crown's third leg has vexed trainers in recent years.

Barbaro pulled into Churchill Downs having raced only once in the 13 weeks before the Derby. Between his starts, he was rested for five to eight weeks. . .

The next stop in the Triple Crown is the Preakness, which is the tightest of the three Triple Crown race courses. Inasmuch as its narrower curves pose a different challenge than the long straightaways of both the Derby and the Belmont, it may just be the toughest race of the the three for a relatively inexperienced horse such as Barbaro to win.

Posted by Tom at 5:06 AM | Comments (0) | TrackBack (0)

Posner on domestic intelligence

Seventh Circuit Judge Richard Posner has carved out a niche as an expert on intelligence issues (see previous posts here and here), and his new book on intelligence issues -- Uncertain Shield: The U.S. Intelligence System in the Throes of Reform ( Rowman & Littlefield 2006) -- will be published next week.

In this Opinion Journal op-ed, Judge Posner notes that the Bush Administration continues to rearrange the deck chairs on the Titanic by burying domestic intelligence operations in the FBI, which is a criminal-investigation agency, rather than a domestic intelligence agency that is focused on intelligence gathering:

[B]urying our principal assets for detecting terrorist plots that unfold within the U.S. in a criminal-investigation agency--the FBI--is unsound. We are the only major country that does this. The U.K.'s domestic intelligence agency, MI5, works closely with Scotland Yard, Britain's counterpart to the FBI. But it is not part of Scotland Yard.

The British understand that a criminal-investigation culture and an intelligence culture don't mix. A crime occurs at a definite time and place, enabling a focused investigation likely to culminate in an arrest and conviction. Intelligence seeks to identify enemies and their plans before any crime occurs. It searches for terrorist sleeper cells in the U.S. with no assurance of finding any. Hunting needles in a haystack is uncongenial work for FBI special agents. . . FBI special agents--the bureau's only operations officers--want to make arrests, and so they zero in on animal-rights terrorists and ecoterrorists--people known to be committing crimes and therefore relatively easy to nail. These people are criminals and should be prosecuted, but as they do not endanger national security, prosecuting them should not be an intelligence priority.

Changing an institutional culture is difficult at best; in this case it may be impossible. Almost five years after 9/11, the horses of change at the FBI have left the paddock but are still short of the starting gate. At least $100 million spent on trying to equip the bureau with modern information technology adequate to its intelligence tasks has been squandered. Just eight months after the president forced a fiercely recalcitrant bureau to combine its intelligence-related divisions into a single unit (the "National Security Branch"), the unit's first and only director has resigned to become the security director of a cruise-ship line. The FBI's primary mission is and will remain fighting crime; and just as crime-fighters don't make good intelligence operatives, intelligence operatives don't make good crime-fighters. The FBI fears compromising its main mission by embracing its secondary one.

The objections to creating a U.S. counterpart to MI5 are shallow. . . Some fear that a domestic intelligence agency would be a secret police, spying on Americans. But like MI5 (and its Canadian counterpart, the Canadian Security Intelligence Service), such an agency would have no powers of arrest, and no greater authority to "spy on Americans" than the FBI now does.

Domestic intelligence is vital because of the danger of terrorist attacks from inside the U.S., such as the 9/11 attacks, and controversial because it entails surveillance of Americans, and not just of foreigners abroad--hence the current controversies over domestic surveillance by the NSA and over the Defense Department's expanding role in domestic intelligence. Before the fifth anniversary of 9/11 rolls around, we need an agency (which the president could create by executive order, as he did the National Counterterrorism Center in August 2004) that, unhampered by either military or law-enforcement responsibilities, can begin to plug a gaping hole in our defense against terrorism.

Check out the entire op-ed.

Posted by Tom at 4:32 AM | Comments (0) | TrackBack (0)

May 14, 2006

The one-time Wonderboy of the Texas Democratic Party

If you have any interest in Texas politics, then you will want to check out this NY Sunday Times article on Ben Barnes, pictured on the far right with former House Speaker Gus Mutscher, former Governor Preston Smith, former president Lyndon Johnson. Barnes is the now 68 year-old elder (some would say elder gadfly) of the Texas Democratic Party who was Speaker of the Texas House at the age of 26, Lieutenant Governor at 30 and washed up in politics at 34 in the wake of the Sharpstown scandal. The NY Times article notes the publication of Barnes' semi-autobiographical book, Barn Burning, Barn Building (Big Sky Press 2006) about his political career and the future of the Texas Democratic Party.

Despite leaving government 34 years ago, Barnes remains a fascinating character of Texas politics. He and the late John Connally made headlines in the late 1980's when their highly-leveraged real estate development business melted down into bankruptcy, although neither faced any criminal prosecution as a result of the business failure (high-profile bankruptcies did not necessarily result in criminal prosecutions back in those days). In the 1990's, Barnes was a member of a group that banked $23 million in a buyout of their lobbyist contract with Gtech, the gambling industry company that ran the Texas lottery under then Texas Lottery chairperson and current White House counsel, Harriet E. Miers. A subsequent lawsuit generated the 1999 deposition in which Barnes alleged for the first time that he had pulled strings as Speaker of the Texas House in 1968 to get President Bush into the National Guard and out of possible service in Vietnam. In a later highly-publicized 60 Minutes II interview during the 2004 presidential campaign, Barnes said he regretted that he had done so. Recently, Barnes has ruffled feathers in the Texas Democratic Party by supporting an independent candidate, Comptroller Carole Keeton Strayhorn, rather than the Democratic Party nominee, Chris Bell.

Over the past fifteen years or so, the Democratic Party has become an afterthought in Texas politics, which has not been a healthy development for the state. Barnes' book likely will include at least some insight into why that has occurred and, in so doing, perhaps provide some guidance on how the party can resurrect itself. If so, that just might be Barnes' most valuable contribution to Texas politics.

Posted by Tom at 8:47 AM | Comments (0) | TrackBack (0)

May 13, 2006

The toughest baseball ticket in Houston this weekend

Almost 40,000 spectators watched the Stros return home from a lousy road trip and beat the Colorado Rockies on Friday night at Houston's Minute Maid Park. However, a ticket to the Stros-Rockies series is not close to being the toughest ticket for baseball in Houston this weekend.

That distinction belongs to the college baseball series taking place in the shadow of Houston's Texas Medical Center at Rice University's Reckling Park between the no. 1-rated Rice Owls and their cross-town rival, the 14th-ranked Houston Cougars. The Coogs -- who are in second-place in the Conference USA standings behind the Owls -- broke Rice's 17-game winning streak before an overflow crowd of 5,000 in the first game of the series Friday night behind star pitcher Brad Lincoln, and games 2 and 3 of the series will take place this afternoon and Sunday afternoon at Reckling Park. The Cougars are now 35-17 (18-4 in CUSA) on the season and the Owls are 40-10 (17-2 in CUSA). UH Sports blogger Ronnie Turner's report on the game is here.

The Rice-UH series holds special interest for me for a couple of reasons. Longtime UH baseball coach, Rayner Noble -- who represents eveything that a college coach should be -- is an old friend and golfing buddy. Moreover, for several years in youth baseball here in The Woodlands, I had the privilege of coaching Rice LF Jordan Dodson and Owls catcher Danny Lehmann, both of whom went on to become star players at the currently no. 1-ranked high school baseball program at The Woodlands High School before enrolling at Rice. The only credit that I can take for those two excellent players is that I somehow was able to avoid messing up their development into outstanding players and fine young men.

Meanwhile, in other Houston baseball news, Tory Gattis passes along this hilarious Onion article entitled "Roger Clemens' Family Offers Him One-Year, $10 Million Contract."

Posted by Tom at 7:51 AM | Comments (0) | TrackBack (0)

May 12, 2006

Judge Gilmore blasts the Fifth Circuit

Don't expect U.S. District Judge Vanessa Gilmore to be sending any holiday greeting cards to the Fifth Circuit Court of Appeals any time soon.

In this unusually candid recusal order, Judge Gilmore accuses the appellate court of making an untrue statement in ordering that the the death-penalty case of a truck driver charged in the smuggling deaths of 19 illegal immigrants be reassigned to U.S. District Judge Lee Rosenthal because Judge Gilmore is "too busy" to handle the case. The Chronicle's Harvey Rice has a story on the dust-up here.

Earlier posts here, here and here report on the rather strained relationship between Judge Gilmore and the Fifth Circuit over this case. It all started when Judge Gilmore threatened to hold the prosecutors in contempt of court for failing to divulge internal Justice Department deliberations regarding the government's decision to seek the death penalty against one of the defendants. The prosecution filed a writ of mandamus (that's like suing the judge) with the Fifth Circuit Court of Appeals requesting the appellate court to order Judge Gilmore, in effect, to cease ordering the prosecution to turnover evidence of communications that are clearly privileged. The Fifth Circuit agreed with the prosecution, and issued this opinion that, among other things, is a rather sharp rebuke of Judge Gilmore's treatment of the prosecution in the case.

By the way, Judge Gilmore is currently presiding over the first re-trial of two of the defendants from the original trial of the Enron Broadband case. That first trial ended in a mix of acquittals and a deadlocked jury on certain counts. Interestingly, Judge Gilmore appeared to favor the prosecution in that first trial by declaring a mistrial without giving the jury much time to deliberate after giving them an Allen charge.

Posted by Tom at 5:42 AM | Comments (4) | TrackBack (0)

Lay-Skilling, Week Fifteen

Week 15 of the corporate criminal case of the decade (previous weeks summary posts here) was the relative calm before the final battle of closing arguments next week. Although there was a skirmish over the Ostrich jury instruction, the lull in the trial provides an opportunity to step back and survey the massive landscape of this important case and attempt to place what has occurred during the trial in a reasonable framework for evaluating closing arguments.

As noted previously, the Enron Task Force has done a much better job in this trial of presenting its case than in the trials of the three previous Task Force prosecutions, the Arthur Anderson case, the Nigerian Barge case and the Enron Broadband case. However, as was the case in all three previous trials, the Task Force has presented a fundamentally weak case against the defendants in this trial.

That the Task Force has made a weak case certainly does not mean that the prosecution cannot win it. Indeed, given the societal bias against anything related to Enron, the betting markets have lined up solidly in favor of conviction of both defendants. But that does not alter the fact that the Task Force’s case is tenuous, perhaps best reflected by the fact that the Task Force believed it necessary to protect its heavily-scripted case by taking the unprecedented step of effectively precluding dozens of former Enron executives with exculpatory testimony for Ken Lay and Jeff Skilling from testifying in the trial. If the Task Force were confident in the strength of its case, then why would it be necessary to prevent the jury from hearing such relevant testimony? In the event that Lay and/or Skilling is convicted, you can make a good bet by wagering that this Task Force tactic will be a front-and-center issue of any appeal.

Another reflection of the weakness of the Task Force’s case is the degree to which the Task Force’s theory of the case changed since the original indictment against Skilling and Lay over two years ago. In fact, as noted earlier here, the Task Force’s indictment ended up being such a mess that the prosecution attempted to prevent Lay and Skilling from using it in questioning certain witnesses during the trial because the prosecution conceded that it was too confusing. About the only thing that has been consistent about each transformation in the Task Force’s theory of the case is the unstated but nevertheless omnipresent presumption that underlies this entire prosecution — i.e., that Enron went bust and Lay and Skilling became rich while leading the company, so they must be guilty of some crime in connection with the company’s meltdown.

Initially, the prosecution alleged that Lay and Skilling presided over a house of cards at Enron that was hidden from the investing public by the fraudulent behavior of Enron management and its conspiring auditor, Arthur Andersen. Then, after a unanimous Supreme Court rebuked the Task Force for prosecuting Andersen out of business, the Task Force modified its original story to allege that Lay and Skilling had also fooled Andersen about Enron’s true nature. After the plea bargain of former Enron chief accountant and former Lay-Skilling defendant Richard Causey about a month before the trial, the Task Force's case evolved into a fairly standard “pump and dump” theory based on Lay and Skilling's alleged non-disclosure of material information.

As an aside, one of the many daunting messages that this prosecution is sending to the business community is that an executive of any publicly-owned corporation better disclose every bit of bad news about their company. Otherwise, that executive will risk prosecution -- under the sharp lens of hindsight bias -- for misleading the investing public about the true health of the company. If the Task Force's approach is successful against Lay and Skilling, then one has to wonder why any executive of a publicly-owned corporation would risk saying anything to analysts and the investing public other than "go read the financial statements in our regulatory filings. It's all there." In fact, in this insightful post, Jeff Matthews asks the salient question: Since when did corporate spin-doctoring in America become a crime?

Once the Task Force finally fixed on its theory of the case, the prosecution presented a case during the trial that largely relied on a complex jumble of innuendo and opinion from plea-bargained prosecution witnesses that requires the jury to connect the dots of many amorphous points in finding a crime. For example, the Task Force does not contend that either Lay or Skilling was involved in approving fraudulent accounting, but rather that mainly Skilling engineered a reorganization of a poorly-performing Enron business unit in a manner that hid losses of that unit underneath the blanket of high profits of Enron's trading unit. The Task Force theorizes that the hiding of these losses — along with over-reserving to hide excess profits of the trading unit — allowed Skilling and Lay to misrepresent Enron to the investing public as a stable logistics company rather than the more volatile trading company that prosecutors allege it had become. Stated simply, the Task Force contends that Enron was a successful but volatile trading company that was having severe financial problems in other parts of its business empire, and the greedy Skilling and Lay covered up the real condition of the company so that they could unload their Enron stock at higher prices than what they would have gotten had they disclosed the true financial condition of the company to the investing public.

However, the premise for the Task Force’s theory seems particularly flimsy. Did Lay and Skilling really orchestrate this alleged massive fraud simply because they are greedy men? During his testimony, Skilling did not come across as a greedy man at all. Similarly, even though the Task Force humiliated Lay during cross-examination regarding his legal use of a company line of credit and his family’s formerly lavish lifestyle, he did not appear to be a particularly greedy man, either. As Lay lawyer Mike Ramsey foreshadowed during opening argument:

"When you don't have a case, you talk about something else, and that's what [the prosecution is] doing when they are trying to make Ken Lay look greedy and when they start talking about him selling stock based on inside information."

Meanwhile, almost all of the incriminating testimony against Lay and Skilling came from former Enron executives who are cooperating with the Task Force, and there are considerable problems for the Task Force with regard to each one of those witnesses. For example, former Enron investor relations executives Mark Koenig and Paula Rieker claimed that they believed that Skilling and Lay misled the investment community in various ways, but they admitted that their knowledge of Enron’s finances was a mile wide and an inch deep, and that they didn't really know the mechanics of how Enron’s earnings estimates were finalized. On the other hand, former Enron Broadband executive Ken Rice asserted that Skilling misled the investment community on the prospects of Enron's broadband unit, but conceded on cross-examination that he also believed the unit had great long-term potential.

Similarly, the prosecution went for a cheap score (also here and here) with former Enron Broadband executive Kevin Hannon by eliciting from him that Skilling had supposedly admitted during a May 2001 meeting with a group of other Enron executives that "they're on to us" after a small analyst firm had produced a research note critical of some Enron transactions. However, when you think about it, Hannon's testimony really undermines the Task Force’s core case. The report that supposedly prompted Skilling's remark was based on negative information about Enron that the company had made available to the efficient securities market. The report was not a particularly novel analysis of Enron; it came a couple of months after Bethany McLean's much-ballyhooed Fortune article in early 2001 that suggested that Enron stock was overpriced. How does the Enron Task Force square publication of the report's negative evaluation based upon information that Enron disclosed to the efficient securities markets with its core allegation that Skilling withheld such information from the markets?

Another risk to the Task Force is how the jury assimilates the highly-publicized and sometimes bizarre testimony of former Enron CFO, Andy Fastow, and his former sidekick, Ben Glisan. Although Fastow implicated Skilling in "secret side deals" and undisclosed "bear hug" guaranties, Fastow is such a despicable character that it remains decidedly unclear whether the prosecution gained much of anything with the jury from his testimony. Moreover, the prosecution's emphasis with Fastow in regard to the Global Galactic memo creates a huge hole in its case given that the Task Force chose not to risk attempting to corroborate Fastow's testimony on that key issue with the testimony of former Enron chief accountant, Richard Causey.

Likewise, former treasurer Glisan — whose heavy-handed treatment by the Task Force had to have made an impression on the jury — contended that he had been advising Lay and others of Enron's dire financial condition since mid-August of 2001 immediately after Skilling's resignation. However, he had no meaningful documentary evidence to support his testimony on that issue. In contrast, Lay's attorneys on cross-examination introduced Glisan's own reports from September and October, 2001 detailing Enron's improving finances, which included one presentation dated October 8 in which Glisan informed Enron’s directors that the company was "on target" to meet its year-end liquidity goals, that it would hold onto its investment-grade credit rating and calling a lowered outlook the "most likely worst-rating outcome" from its third-quarter earnings report. Ten days later, Glisan transmitted an October 17 Deutsche Bank credit analysts' report to Mr. Lay and others that noted Enron's "liquidity remains solid."

Thus, the Task Force's case relies heavily on testimony from cooperating witnesses who initially lied to investigators — sometimes for years — until finally copping a plea in which they bargained for a reduced prison term and usually a substantial net worth in return for testifying against Lay and Skilling. Despite alleging now that Lay and Skilling were involved in lying about Enron to the investment community years ago, none of the Task Force witnesses produced any meaningful corroborating documentary evidence that they had any reservations at the time about the statements that Lay and Skilling were making. None of the witnesses testified that Lay or Skilling at the time ever admitted that they thought they were making misleading statements. None of the Task Force witnesses provided meaningful testimony in regard to the alleged huge conspiracy within Enron to cover up the alleged wrongdoing at the company. In short, the Task Force would have the Lay-Skilling jury believe that the biggest corporate conspiracy in American history was hidden from everyone except Lay, Skilling and these relative few Enron executives who have copped pleas, struck deals while in prison or entered into non-prosecution agreements. That's not a compelling case in my book.

Given that the Lay-Skilling defense took a considerably shorter amount of time to put on than the Task Force’s case, I’ve simply highlighted the following posts that summarize Skilling and Lay’s rebuttal to the Task Force’s charges:

The initial Lay-Skilling witnesses.

Jeff Skilling defends Enron and himself.

The misdirected cross-examination of Skilling.

Attempting to equate humiliation with guilt in regard to Ken Lay.

The real story about Ken Lay’s Enron line of credit.

What is particularly interesting to note while reading through these posts is how the focus of the Task Force’s case subtly shifted during presentation of the defense’s case. Rather than attempting to challenge Skilling and Lay on the core business fraud charges, the Task Force during the defense case emphasized marginal but easy-to-understand matters such as PhotoFete and Lay’s personal finances. By the time Lay’s testimony was completed, the Task Force prosecutors had asked Lay and Skilling several hundred questions over PhotoFete and Lay's handling of his personal finances while asking precisely zero questions on such issues as the alleged Global Galactic agreement and the alleged huge conspiracy at Enron. Yet another indictation that this is simply not a strong prosecution case.

While I’m at it, the following are a few more of the posts dealing with key issues or testimony that have arisen during the Lay-Skilling trial:

The great waste of criminalizing risk-taking.

While the price of asserting innocence is high, pleading guilty is lucrative.

The real presumption in the Lay-Skilling case.

The key evidentiary issue in the Lay-Skilling case

The Nigerian Barge case unravels for the Task Force during the Lay-Skilling trial as William Fuhs is released from prison.

Andy Fastow’s testimony, the increasingly bizarre case of Lea Fastow and the possible Fastow forgery of Causey’s signature on Global Galactic.

By the way, where is Waldo, er, . . I mean, Causey, anyway?

Ben Glisan’s sordid deal with the Task Force and his 30,000 foot flyover testimony.

The insufferable Sherron Watkins.

The Task Force prevents the jury from hearing the entire story of what happened at Enron.

So, on Monday, U.S. District Judge Sim Lake will read the 40 plus page charge to the jury and then Prosecutor Kathy Ruemmler will give 3-4 hours of closing argument for the Task Force. On Tuesday, Dan Petrocelli will give about 3½ hours of argument on behalf of Skilling and Mac Secrest and Mike Ramsey will provide about 2½ hours of argument on behalf of Lay. Task Force director Sean Berkowitz will close with a couple of hours on Wednesday morning and then Judge Lake will give the corporate criminal case of the decade to the jury.

My experience with closing arguments is that they are mostly about reinforcement of beliefs that have developed during the trial and rarely about persuading jurors about changing their position. Consequently, there is a good chance that the Lay-Skilling jurors have already made up their minds about the case and, given the enormous pre-trial publicity in this case, they may have done so even before the trial began.

If the jurors have already made their decision before the trial began, then that would not only be an injustice for the defendants, but also an unfortunate ending to this chapter of the Enron saga. Despite the fact that the Task Force has prevented many witnesses with exculpatory testimony from testifying on behalf of Lay and Skilling, much of what has been presented during the trial conflicts with the presumptions and biases of the numerous societal forces that adhere to the now familiar Enron morality play that rejects any notion of ambiguity or fair-minded analysis in determining the truth of what really happened at the company. Twelve citizens of Houston have an opportunity to evaluate the evidence presented during the Lay-Skilling trial objectively without the veneer of that Enron morality play.

For the sake of justice, the rule of law and our criminal justice system, here's hoping they do.

Posted by Tom at 5:00 AM | Comments (3) | TrackBack (0)

May 11, 2006

Overreacting a bit to the Ostrich instruction

Alexei Barrionuevo, who has done an excellent job covering the Lay-Skilling trial for the NY Times, weighs in today with this article reporting on U.S. District Judge Sim Lake's decision to include in the jury charge an instruction relating to the "conscious avoidance" or "deliberate ignorance" for both Skilling and Lay, which is a lower standard for finding the men guilty of conspiracy and fraud related to the company's collapse in December 2001. In short, such an instruction allows the jury to convict the defendants of crimes if it concludes that the former executives put their heads in the ground (thus, the instruction is nicknamed "the Ostrich instruction") to avoid finding out about criminal activity at the company.

The instruction is important from a legal standpoint, particularly given that the U.S. Supreme Court reversed the conviction of Arthur Andersen in an earlier Enron Task Force prosecution because of a faulty jury instruction. Inasmuch as neither Skilling nor Lay contended in their defense that they were detached from running Enron during the time in which the Task Force alleges that they committed crimes, and the Task Force has prosecuted the case as a fairly typical "pump and dump" case, there is a good argument that inclusion of the instruction in the charge is reversible error if either or both men are convicted. Barrionuevo quotes my old friend, Houston-based criminal defense lawyer, Joel Androphy:

"The government can't argue a theory, offer evidence on a theory and then do a 180 and argue for an instruction on an alternate theory. That's not permissible."

Although important from a legal issue standpoint, my sense is that the Ostrich instruction in this special case is probably not all that important from a practical standpoint. Because of the almost unprecedented negative media coverage relating to Lay, Skilling and Enron prior to this trial, the much more important issue is whether the jury was truly impartial at the outset of the case. If they were not, then Lay and Skilling's fate was sealed from the beginning and the Ostrich instruction is not going to affect the jury's decision in the slightest. On the other hand, if the jurors are truly impartial -- particularly the leaders on the jury who will guide the panel to a decision once deliberations begin -- then my sense is that the jurors are unlikely to rely on something as amorphous as the Ostrich instruction to convict these men in a case of this nature.

In short, if the jury is truly impartial -- the key issue in the trial -- then they are likely going to want more meat than merely Lay and Skilling "should have known" to send these men to the slammer for the rest of their lives.

Posted by Tom at 6:02 AM | Comments (4) | TrackBack (1)

A.M. Rosenthal, R.I.P.

A.M. "Abe" Rosenthal, the former editor of The New York Times for 17 years through the 1970's and 80's, died Wednesday at the age 84 from the effects of a stroke suffered two weeks ago.

Probably the biggest story that the Times broke under Rosenthal was the publication in 1971 of the Pentagon Papers -- confidential government papers on America's secret involvement in Vietnam -- which won the Times one of its many Pulitzer Prizes awarded while Rosenthal was editor. The Pentagon Papers revealed that every Presidential administration since World War II had enlarged America's involvement in Vietnam while hiding the extent of that commitment, but publication of the papers was risky given their classified nature. The Nixon Administration tried to suppress publication of the papers, which led to to a landmark Supreme Court decision upholding the primacy of the press over government attempts to impose "prior restraint" on what may be printed.

The best story about Rosenthal, however, is the one involving his forced retirement from the Times, which was not pleasant. In the mid-80's, Rosenthal stepped down as editor of the Times and became a columnist for the newspaper. But in 1999, after 40 plus years with the Times, Times publisher Arthur Sulzberger Jr. rather unceremoniously dumped Rosenthal with no explanation. Rosenthal made clear that his leaving the Times was not his idea, telling one reporter that he should not report that he retired because it "would imply volition." Then, when a young female Washington Post reporter asked him whether he had been fired, Rosenthal famously replied:

"Sweetheart, you can use any word you want."

Posted by Tom at 5:09 AM | Comments (0) | TrackBack (0)

Lawrence Sager named UT Law School Dean

Lawrence Sager, the holder of the Alice Jane Drysdale Sheffield Regents Chair at the University of Texas Law School and a noted scholar in the theory of Constitutional Law, has been named the new dean of the UT Law School.

Sager, who is 64, replaces William Powers Jr., who recruited Sager to UT four years ago and and is now president of the university. UT Law Professor Brian Leiter, who was a member of the search committee for the new dean, comments here and here.

Sager taught for more than 25 years at New York University's law school before coming to the UT Law School. He was selected from a field of finalists that included a federal judge from California and legal scholars at the University of Virginia, Boston University, Cornell University and Yale University.

Posted by Tom at 4:32 AM | Comments (0) | TrackBack (0)

May 10, 2006

Casserly is gone

As noted in this post from over a month ago, one of the worse-kept secrets in Houston sports circles over the past several months is that Houston Texans General Manager Charlie Casserly would -- take your pick -- either resign or be fired after the completion of the annual NFL Draft of college players in April. This Megan Manfull/Chronicle article today confirms that Casserly is gone.

Inasmuch as the Texans on-field performance over the club's first four seasons has been the poorest of any recent NFL expansion franchise, the fact that Casserly is being shown the door is not a surprise to anyone except the Chronicle. For some reason, Chronicle NFL columnist John McClain has been maintaining the facade that Casserly's leaving is voluntary when there is a strong probability that it is not. "There have been reports that Casserly will be fired, which isn't true," writes McClain. "If he leaves, it will be his decision."

H'mm. Apparently it never occurred to McClain that the eminently classy Texans owner Bob McNair might be willing to throw Casserly a bone by allowing him to say that his leaving is voluntary rather than a firing. The fact that McClain's relationship with Casserly apparently does not allow him even to acknowledge that possibility reveals that he really shouldn't be writing about the matter in the first place.

Update: McClain won't give up on his theory that Casserly was not pushed out, even though there is little question that Casserly's contract -- which had only a year left on it -- would not have been renewed.

Posted by Tom at 6:44 AM | Comments (0) | TrackBack (0)

Judge Hughes confirms Hyde Act sanction

Following on this earlier post, this Harvey Rice/Chronicle story reports that U.S. District Judge Lynn Hughes ordered the Justice Department to pay $390,000 in attorney's fees and expenses to an Oklahoma attorney as a Hyde Act sanction for a bad-faith prosecution.

In so doing, Judge Hughes observed during a hearing yesterday that the government's charges amounted "to a garbled press release about working men who can't get insurance" and "a jumble of claims and stray facts."

By the way, for Judge Hughes' opinion of the work of the Enron Task Force, see here.

Posted by Tom at 6:29 AM | Comments (0) | TrackBack (0)

Anything for a conviction

As noted here yesterday, the Enron Task Force refused Ken Lay and Jeff Skilling's request to have the prosecution recommend to U.S. District Judge Sim Lake that half-a-dozen former high-level Enron executives who have declined to testify during the trial on Fifth Amendment grounds be granted immunity from having their testimony used against them in a subsequent prosecution.

Those witnesses -- several of whom have been mentioned prominently in testimony during the trial -- would likely provide exculpatory testimony for Lay and Skilling if they were to testify. The Lay-Skilling defense team limited their immunity request to those six witnesses even though the Task Force fingered the unprecedented number of the Task Force identified over 100 former Enron executives as unindicted co-conspirators in the case for the transparent purpose of preventing the jury from hearing the full story of what happened at Enron.

Now, according to this Mary Flood/Houston Chronicle article, the Task Force is requesting that Judge Lake go even further and instruct the Lay-Skilling defense team not to inform the jury during closing arguments of the Task Force's decision not to allow the jury to hear all the witnesses with relevant testimony about the charges against Lay and Skilling. In short, the Task Force's position is "we don't want the jury to hear all the relevant evidence, but we also don't want the other side telling the jury that we don't want them to hear all the relevant evidence." In the meantime, you can bet that the Task Force will tell the jury during closing argument that the testimony of the dozen or so former Enron executives who testified against Lay and Skilling under plea deals with the Task Force is pervasive evidence of Lay and Skilling's guilt. A copy of the Task Force's motion is here.

The destroyed lives, careers and economic wealth that lies in the wake of the Task Force's previous Enron-related prosecutions is a foreboding legacy of this abominable Task Force tactic that ensures that juries will never hear exculpatory testimony for the defense. During those earlier trials -- the Arthur Anderson case, the Nigerian Barge case and the Enron Broadband case -- the Task Force identified dozens of former Enron executives as either targets of the Enron criminal investigation or unindicted co-conspirators of the defendants. As a result, the Task Force effectively prevented many witnesses with exculpatory testimony for the defendants in those cases from testifying because of the threat that the witnesses' waiver of their Fifth Amendment privilege would likely lead to criminal charges against them if they chose to testify contrary to the Task Force's position in those cases.

The huge impact of this Task Force tactic was brought into full focus during the first trial of the Enron Broadband case last year. That trial initially appeared to be a sure-thing for the prosecution, but the Task Force's case unraveled quickly as witnesses Lawrence Ciscon and Beth Stier both testified to a riveted jury about the Task Force's threats of prosecution against them if they provided exculpatory testimony on behalf of the former Enron executives on trial in that case. That trial ended in a disastrous mix of acquittals and jury deadlock on the Task Force's charges.

Arthur Andersen and the defendants in the Nigerian Barge trial were not so fortunate. In Andersen, the Task Force used the tactic in maliciously destroying a fine American company that had contributed to orderly commerce and the preservation of wealth in the U.S. for over eight decades. Likewise, in the Nigerian Barge case, dozens of witnesses from Enron and Merrill Lynch with exculpatory testimony for the defendants declined to testify because of the threat to Task Force retribution. The result was an an unspeakable injustice for the four Merrill Lynch executives convicted in that case.

Thus, our "Justice" Department is not really about "justice" at all. Rather than having a jury fairly evaluate all evidence relating to its charges against unpopular defendants or -- as Larry Ribstein points out today -- allowing defendants access to funds necessary to defend themselves effectively, our Justice Department is much more interested in indulging public bias against those defendants. Indeed, that bias is so pervasive with regard to the Lay-Skilling case that the Houston Chronicle runs vile columns and blog posts on almost a daily basis embracing the prosecution's calls for conviction of the defendants without so much as a mention -- much less meaningful analysis -- of the serious implications to justice and the rule of law arising from the government effectively preventing witnesses with exculpatory testimony for the defense from testifying in the case. Something is seriously wrong with the administration of justice in America when the judiciary and the media blithely accept the government preventing a jury from hearing favorable testimony for defendants who are facing the overwhelming governmental power to imprison them for most of the rest of their lives.

Posted by Tom at 4:45 AM | Comments (11) | TrackBack (1)

May 9, 2006

Stros 2006 Review, Part Two

I don't know about you, but it sure seems to me that the first 20% of the Major League Baseball season flew by quicker than a Roger Clemens fastball. Now, if we could only see a Clemens fastball.

As predicted in my first Stros review for this season, the Stros (19-13) as a team have cooled off, going 8-8 in their second 16 game segment of the season after their sterling 11-5 start, which is still good enough to keep the Stros in the thick of the Central Division race with the Cardinals (20-13), the surprising Reds (21-11), the Brewers (16-16) and the Cubs (14-17). But despite several members of the club enjoying All-Star caliber seasons to date, there are enough warning signs about the Stros that it's still not clear to me -- absent a comeback from Clemens, that is -- that the Stros can remain in playoff contention throughout the season in the strong NL Central.

Through the first 20% of the season, the Stros have generally hit better than expected (at least until this past weekend's series in Denver, that is) and pitched not quite as well as expected. The club's hitting and pitching statistics to date are set forth below, and pdf's of the hitting stats are here and the pitching stats are here, courtesy of Lee Sinins' sabermetric Complete Baseball Encyclopedia:

The abbreviations for the hitting stats are defined here and the same is done for the pitching stats here.

Even after melting down in Denver over the past weekend, the Stros remain one of the better hitting clubs in the National League to date. 1B Berkman (14 RCAA/.396 OBA/.669 SLG/1.065 OPS) and 3B Ensberg (14/.415/.631/1.045) are two of the top half-dozen hitters in the National League so far this season, although Ensberg has tailed off somewhat after a torrid first 10% of the season. Although he hasn't started hitting yet, RF Lane (0/.341/.411/.752) continues to be productive and the ageless 2B Bidg (1/.341/.484/.825) is set up to have another solid season, while CF Taveras (-6/.336/.339/.674) and SS Everett (-4/.306/.364/.669 ) -- although both hitting below National League average -- have both shown considerable improvement at the plate over last season. Even C Brad Ausmus -- one of the worst hitters among regular National League players over the past decade -- has a positively robust hitting line of (6/.451/.417/.868).

On the other hand, LF Preston Wilson (-5/.286/.412/.697), an off-season acquisition that was intended to bolster the club's lackluster hitting, has been a disappointment, and the Stros' bench -- with the exception of the recently-injured Chris Burke (5/.425/.622/1.047) -- has been a disappointment to date. Nevertheless, if Taveras, Everett and Ausmus can continue their above-career average hitting -- and neither Berkman nor Ensberg is injured for any prolonged period -- then this Stros team appears to have the potential to finish as an average or slightly above-average National League hitting club.

Unfortunately, that hitting performance may not be good enough to contend because the Stros pitching has taken a serious downturn from last season's stellar performance. Through the first 20% of the season, the Stros pitching staff is smack dab in the middle of the 16 National League teams in runs saved against average (RSAA, explained here) and are just an average NL pitching staff so far this season.

Despite last night's poor outing in San Francisco, Roy O (3.62 ERA/4 RSAA) continues to be one of the National League's best pitchers and young starters Buchholz (2.16 ERA/ 8 RSAA) and Rodriguez (3.27 ERA/5 RSAA) have been pleasant surprises. However, the rest of the pitching staff has been pitched nearly as well as last season. Pettitte (5.06 ERA/-4 RSAA) got lit up early and, although better recently, still has not come close to his dominating 2005 level of performance and rookie Nieve (5.55 ERA/-4 RSAA) has been nothing more than a stopgap as a starter. Other than Wheeler (3.21 ERA/2 RSAA), journeyman Borkowski (0.00 ERA/4 RSAA) and Springer (3.72 ERA/1 RSAA), the bullpen has been inconsistent, including stalwarts Lidge (6.19 ERA/-3 RSAA) and Qualls (5.74 ERA/-3 RSAA), and the backend of the staff -- Gallo (8.59 ERA/-4 RSAA), Astacio (13.50 ERA/-4 RSAA), and Trevor Miller (12.27 ERA/-3 RSAA) -- is a disaster waiting to happen. Consequently, absent a considerable overall improvement from the staff and the return of Clemens as a solid starter, the Stros simply are not a strong enough hitting club to carry an average National League pitching staff.

Speaking of Lidge, his troubles so far this season are easy to identify -- lack of control. He has walked 13 batters in 16 innings (compared with 23 in 70.2 innings last season), and his lack of command has also contributed to the 16 hits (3 HR's) that he has surrendered. The book on Lidge is clearly for hitters to lay off his devastating slider until there are two strikes, and Lidge has not been able to throw the slider for strikes with sufficient consistency to stay ahead in the count to hitters. Consequently, the hitters are sitting on Lidge's fastball while ahead in the count, which is why Lidge's nickname is currently "Lit-up" rather than "Lights Out."

My sense is that Lidge will turn it around, but some perspective is also needed in regard to him. A late bloomer primarily because of injuries while in the minors, Lidge had a solid season (3.60 ERA/8 RSAA) for the first time in 2003 as a relatively old 26 year old. In 2004, Lidge took over as the closer and developed into the second-best pitcher (behind only Clemens) on the Stros' staff and one of the best relievers in the National League (1.90 ERA/26 RSAA). In 2005, Lidge was still quite good (2.29 ERA/14 RSAA), but was only the fifth best pitcher (behind Clemens, Pettitte, Oswalt, and Wheeler) on a strong Stros staff.

The point of all this is that Lidge appears to be a grizzled veteran, but he only seems that way because he is 29. He still has just over three seasons of experience and -- while he has performed well in each of those seasons -- he has been truly dominant in only one. Thus, even though the expectation is for Lidge to be as good as he was during the 2004 season, there is a much better chance that he will not reach that level again and will settle into being a 15 RSAA-per-season-type pitcher. There is certainly nothing wrong with that and he will continue to make a valuable contribution to the club if he performs at that level. However, even that very good level of performance will not fulfill the unrealistic expectations that many Stros fans have of Lidge based on his dominant 2004 season. That would be unfortunate because he is probably neither that good a pitcher nor as bad as he is right now. My sense is that his performance last season is about what we can expect on average from Lidge and, frankly, that's plenty good enough.

The schedule is favorable for the Stros over the next 16 game segment, with nine of the games taking place at Minute Maid Park where the club has a 14-4 record so far this season. After those games, it's time for the Stros to face the their NL Central rivals the Cardinals, Reds and Cubs over a two week period at the end of May and the beginning of June. Thus, by mid-June, we should have a pretty good idea of whether this Stros team has sufficient firepower to contend for a National League playoff spot.

Roger Clemens is probably waiting to see the same thing.

Posted by Tom at 8:02 AM | Comments (4) | TrackBack (0)

Our Justice Department at work

Yesterday, in the last day of testimony in the criminal trial of former key Enron executives Ken Lay and Jeff Skilling, the Enron Task Force confirmed in open court that it refuses to grant immunity to half-a-dozen former Enron executives who have declined to testify during the trial on Fifth Amendment grounds, but would likely provide exculpatory testimony for Lay and Skilling if they were granted immunity to testify. The Lay-Skilling defense team limited the immunity request to those six witnesses even though the Task Force has fingered about 100 former Enron executives as unindicted co-conspirators in the case and targeted many of those in the Enron criminal investigation without indicting them. U.S. District Judge Sim Lake declined to grant defense immunity to the witnesses after the Task Force refused to recommend immunity to facilitate the witnesses' testimony.

Meanwhile, during a hearing yesterday in New York federal district court, a Skadden, Arps lawyer representing accounting firm KPMG in negotiations with the Justice Department over KPMG's involvement in creating and promoting allegedly illegal tax shelters testified that a Justice Department prosecutor threatened that "if [KPMG has] discretion regarding [payment of attorneys' fees of KPMG partners involved targeted in the probe], we will look at that under a microscope." Ellen Podgor in this post provides excellent background information on this hearing.

So, in one case, the Justice Department prevents a jury from assessing potentially exculpatory testimony for the defense while, at the same time, arguing that its witnesses alleging criminal conduct against the defendants are unrefuted. In another case, the Justice Department attempts to undermine individual defendants from defending themselves by cutting off their main source of funds for a defense to a prosecution that -- absent such a source for defense costs -- would likely overwhelm them.

Yet two more examples of the increasingly high price of asserting innocence in our criminal justice system. As Sir Thomas More reminds us, "do you really think you could stand upright in the winds [of abusive prosecutorial power] that would blow" if that power were to set its sights on you? And what is the more serious danger to justice and the rule of law -- out-of-control prosecutors or risk-taking businesspersons?

My answer is here, here, here and here.

Posted by Tom at 7:04 AM | Comments (2) | TrackBack (0)

Aggies and Seahawks settle the 12th Man dispute

Withering under the logic of Texas A&M's complaint (picture on the left) in the university's copyright infringement lawsuit over its revered 12th Man slogan, the Seattle Seahawks gave in and entered into a settlement with the Aggies under which the Ags will allow the NFL club to continue using the phrase "12th Man" so long as the Seahawks acknowledge in doing so that the copyright on the slogan belongs to the Aggies.

The 12th man tradition began at Texas A&M in the 1920s, and the Seahawks adopted it in 1984 when they retired the no. 12 because of the help that their noisy fans provided in the old Kingdome Stadium. The Seahawks' use of the 12th Man slogan became more prominent this past season during a successful playoff run when the volume at Qwest Field was so loud that more false-start penalties were committed there than in any other NFL stadium. As a result, the Aggies demanded that the Seahawks refrain from using the slogan and then filed a lawsuit.

Both sides of the lawsuit attempted to spin the settlement favorably. A&M Chief Marketing Officer & Vice President for Communications Steven B. Moore emailed this message to A&M alums :

"I'm pleased to inform you that, after months of negotiations, the university has reached an amicable agreement with the Seattle Seahawks resolving the controversy regarding the use of Texas A&M's 12th Man trademark. Under the agreement, the university has granted the NFL team a license to use the 12th Man trademark in a seven-state area in the northwest that encompasses the current primary broadcast area of the Seahawks. As is the case of all licensees, the Seattle Seahawks will pay the university a licensing fee and will state publicly that Texas A&M owns the 12th Man trademark each time it is used."

On the other hand, Seahawks CEO Tod Leiweke said:

"You won't see any change. In certain places we will acknowledge their license and trademark. [. . .] Once they got into it, they realized it was the real deal here. It wasn't a one-time marketing slogan . . . there was something real and authentic here."

Meanwhile, a friend of mine -- a fervent Aggie booster -- emailed me with this reaction to the settlement, which is apparently shared by a number of Aggie faithful:

"The Ags gave up, just like [Head Coach Dennis] Franchione's defense."

Posted by Tom at 6:28 AM | Comments (0) | TrackBack (0)

Oscar Wyatt's Oil-for-Food motion to dismiss

Lawyers for Oscar S. Wyatt Jr. have filed a motion to dismiss criminal conspiracy charges against the longtime Houston oilman in connection with the United Nations' Oil-for-Food scandal in which they contend that the federal charges are retaliation for his being "a persistent and vocal critic of U.S. policy." A copy of the motion to dismiss is here, the table of contents of the memorandum in support of the motion to dismiss is here, and you may download a copy of the 88-page memorandum here. Previous posts on the federal investigation of Wyatt in connection with the Oil-for-Food scandal are here, here and here.

Mr. Wyatt was indicted in October, 2005 is an expansion of another federal case that was brought in April against David B. Chalmers Jr., president of Houston-based Bay Oil USA Inc. The indictment accuses Wyatt of conspiring with Chalmers and two Swiss business executives of paying millions of dollars in kickbacks to Saddam Hussein's regime in Iraq so that Wyatt's companies could continue to sell Iraqi oil under the Oil-for-Food program. Under the indictment, the 81 year old Mr. Wyatt faces a potential jail term of at least 60 years and the threat that the Justice Department will attempt to freeze a substantial amount of his assets. Wyatt -- who was arrested early in the morning of October 21 at his home in Houston -- is currently free after pleading not guilty to the charges and posting bail of $2.5 million.

Wyatt's memorandum asserts that he has been singled out by the federal governement for prosecution even though a special U.N. panel led by former Federal Reserve Chairman Paul Volcker found that a large class of similarly-situated people and more than 2,000 companies had paid surcharges to the Iraqi government under the program, but had not been subjected to prosecution. Wyatt -- who has been a frequent and harsh critic of both Bush Administrations and the government's Middle East policies -- contends that the prosecution is punishment for Wyatt's outspoken views:

Here the government has singled out Wyatt for prosecution as a persistent and vocal critic of U.S. policy and support for commerce with Iraq, . . [. . .]

The government is now seizing its opportunity to silence Wyatt and vindictively punish him for his expression of these views. In a classic case of selective and discriminatory prosecution, the government has chosen to select only the most outspoken of its critics for prosecution for regulatory violations of the very embargo he strenuously has criticized.

Wyatt's memorandum goes on to argue that companies that paid the surcharges may have violated international norms, but they did not obtain or divert money or property from those whom the government has identified as the alleged victims.

The memorandum also alleges that five government agents and two uniformed police officers arrested Wyatt at his home at 6:13 a.m. on Oct. 21, and that one of the agents injured Wyatt's shoulder when he forced him against the wall and handcuffed him when Wyatt allegedly did not raise his hands quick enough.

Interestingly, in another development in the case, the Court recently granted Wyatt's request -- over the governmetn's objection -- to depose prominent Houston heart surgeon Michael DeBakey as a character witness for Wyatt. Dr. DeBakey, who is in his mid-90's and is a remarkable physical specimen, has recently been battling an illness that has reportedly left him near death.

Posted by Tom at 5:19 AM | Comments (0) | TrackBack (0)

May 8, 2006

The end of the confounding contango?

This post from a couple of weeks ago noted the rise of crude oil prices to over $70 per barrel, and this subsequent post examined the unusually long contango period that has existed in the oil trading markets during the current run-up in crude oil prices.

Well, crude oil prices have now fallen below $70 per barrel again. Thus, Clear Thinkers favorite James Hamilton is wondering whether oil prices have peaked for the time being. One interesting observation in the post is about the impact of $3 a gallon gasoline prices:

These data seem to suggest that the April gasoline price increases may have been sufficient to reverse the usual tendency for the U.S. public to use more gasoline each year than the previous year. Certainly that's what we observed last fall when gas prices were around their current values, and I see no reason not to expect to see the same thing to be repeated now.

Posted by Tom at 7:00 AM | Comments (0) | TrackBack (0)

The next troubled Texas PGA Tour event

This earlier post reviewed the problems that continue to plague the Shell Houston Open Golf Tournament on the PGA Tour schedule. However, to the north of Houston, the EDS Byron Nelson Open -- which begins Thursday in Dallas -- is facing many of the same problems that the Shell Houston Open is experiencing.

Due to its current spot on the PGA Tour schedule a month or so after The Masters, "the Nelson" has generally enjoyed one of the stronger "non-major" tournament fields -- including Tiger Woods -- because most players view it as a timely tune-up for The Memorial Tournament later in the month and then the U.S. Open in June. However, Woods is not participating this year because of the death of his father last week and my sense is that Dallas -- as with Houston -- may not see Woods again for a very long time.

Not only did Woods' consecutive-cut streak on the PGA Tour end at last year's Nelson, but the Nelson is played on two mediocre courses, Cottonwood Valley (for only the first two rounds) and the TPC Four Seasons, neither of which are particularly favored tracts among PGA Tour players. Moreover, next year, when the Players Championship moves to the second week of May, the Nelson will be moved up to the final week of April, just three weeks after the Masters. Thus, the Nelson will be followed by the Wachovia Championship in Charlotte and then the Players Championship the following week.

Notwithstanding Byron Nelson's drawing power, it's not likely that Woods, Phil Mickelson, Ernie Els and other top Tour players will cut their post-Masters layoff to two weeks to play in the Nelson when many of them will be playing the pre-Players tuneup the next week at Wachovia and all of them the following week at the Players. In short, the Nelson is about to begin experiencing the type of fields that the Shell Houston Open has endured over the past several years.

With San Antonio's Texas Open already relegated to an afterthought during football season in the fall, and Ft. Worth's Colonial Invitational gradually losing the best players because of the tight layout that is not conducive to the floggers, the PGA Tour better sit up and take notice -- its four tournaments in the one of nation's premier golfing states are suffering from serious neglect. How much longer will the thousands of Texans who volunteer their time to run those tournaments -- and the tens of thousands who fund them -- continue to do so in the face the subpar fields that the PGA Tour is serving up in Texas?

Posted by Tom at 5:59 AM | Comments (0) | TrackBack (0)

Self-help dentistry

This NY Sunday Times article explores Britain's state-financed dental system and finds that the lines for treatment are so long that some citizens simply opt to treating themselves:

Britain has too few public dentists for too many people. At the beginning of the year, just 49 percent of the adults and 63 percent of the children in England and Wales were registered with public dentists.

And now, discouraged by what they say is the assembly-line nature of the job and by a new contract that pays them to perform a set number of "units of dental activity" per year, even more dentists are abandoning the health service and going into private practice — some 2,000 in April alone, the British Dental Association says.

How does this affect the teeth of the nation? [ . . .]

"I snapped it out myself," said William Kelly, 43, describing his most recent dental procedure, the autoextraction of one of his upper teeth.

Now it is a jagged black stump, and the pain gnawing at Mr. Kelly's mouth has transferred itself to a different tooth, mottled and rickety, on the other side of his mouth. "I'm in the middle of pulling that one out, too," he said. [ . . .]

A recent Guardian newspaper article about the company titled "D.I.Y. Dentistry" (meaning Do It Yourself) said that the previous week British drugstores had sold 6,000 jars of the filling replacement, and 6,000 of the crown-and-cap replacement.

Keep this article handy to show to the next person who advocates a state-funded health care finance system for the U.S.

Posted by Tom at 5:39 AM | Comments (1) | TrackBack (0)

May 7, 2006

Darwin trumps Buffett at the WSJ

The Wall Street Journal ($) online edition has a section entitled "At a Glance," which contains several groupings of articles from the WSJ online edition. One of the grouping categories is called "Most Popular," which lists the articles that are receiving the most hits from WSJ readers.

On this weekend of Berkshire Hathaway's always popular shareholders meeting, the No. 1 article receiving the most hits in today's WSJ online edition is science columnist Susan Begley's column entitled Darwin Revisited: Females Don't Always Go for Hottest Mate.

Heh.

Posted by Tom at 7:23 AM | Comments (1) | TrackBack (0)

A Texas Hill Country Legend

Don't miss this Susan Dominus/NY Sunday Times profile of actor Rip Torn, who was born and raised in the Texas Hill Country and studied acting in the mid-1950's at the University of Texas under the noted Shakespearean professor B. Iden Payne.

Although Torn is better known these days for his character roles in such mainstream comedy films as Men in Black and Dodgeball, I maintain that his defining role was as the despicable country-western singing star, Maury Dann, in the 1972 cult classic, Payday. In that film -- which is not carried by Netflix and is somewhat difficult to find -- Torn's character plumbs the depths of human depravity while being indulged every step of the way by the people who are dependent on him for their livelihood. Marlon Brando won the Academy Award that year for his memorable performance as Don Corleone in The Godfather, but in my view, Torn's performance as Maury Dann in Payday was even better.

Posted by Tom at 6:48 AM | Comments (0) | TrackBack (0)

May 6, 2006

Promoting John Daly

Any excuse to run the outstanding picture on the left of PGA Tour golfer John Daly, eh?

Although a winner of two majors (1991 PGA and 1995 British Open) over a decade ago, Daly has won only golf tournament in the past 11 years. Nevertheless, he remains one of the most popular and colorful members of the PGA Tour. Married four times with periodic alcohol problems, a big heart and a reality television show to his credit, Daly is one of those larger-than-life characters who seem to attract many of the same folks who watch auto races in anticipation of the crashes.

This week, Daly raised more than a few eyebrows around the rather staid PGA Tour as a result of being the subject of a rather odd promotional campaign for his new autobiography, My Life In and Out of the Rough (HarperCollins 2006), which hits the stores on Monday. The promotional campaign is highlighting Daly's wild days and nights on the PGA Tour and, according to this Mike Bianchi/Orlando Sentinel review, the book is not for the fainthearted. After reading Daly's description of various sexual exploits, Bianchi notes:

It's always amazed me why Daly is so beloved among sports fans when he is 10 times more corrupt than Terrell Owens, Barry Bonds and Ricky Williams combined. I guess it pays to be a good ol' boy white golfer.

Meanwhile, most of the media coverage focused on the gambling habit that Daly claims in the book has cost him between $50 million and $60 million. Daly's gambling revelations garnered so much publicity during the week that former NBA basketball star Charles Barkley was prompted to remind folks that he, too, is a character in that he had lost $10 million or so at the gaming tables. To top it all off, Daly will be the subject of the seemingly obligatory segment during this Sunday's 60 Minutes show on CBS.

Daly's extravagant money requirements were highlighted in the following passage from this Associated Press article this week on Daly's book:

And there are times when Daly knows his priorities.

He wrote about winning the British Open at St. Andrews and facing a dilemma. Wilson and Reebok, his corporate sponsors, were on the phone with agent Bud Martin, desperate for Daly to get out to the Swilcan Bridge for a promotional picture. The sun was setting, so there was no time to spare.

But hold on -- the president was on the phone and wanted to talk to Daly.

"My first thought was ... the president of the United States wants to talk to me," Daly wrote. "But then Bud pointed out that Wilson and Reebok were putting $4 million a year in my pocket, and all Clinton was doing was taking 40 percent away."

He went to the bridge.

Count me as skeptical that Long John's claims regarding the size his gambling losses are anything more than promotional flare for his new book. By my calculations, Daly would have had to generate something in the neighborhood of $150 million over the past 15 years just to be in a position to lose that much money in the casinos. Inasmuch as Daly has grossed less than $10 million in career PGA Tour earnings, after you net out the substantial expenses of playing the PGA Tour, alimony to three ex-wifes and support for his four kids, Daly would have had to average about $10 million a year in endorsement income even to come close to having enough to gamble away $50 million of it. In Daly's best year, he has made about $7 million in off-course income and he probably has not averaged even half that much annually over the rest of his 15-year career. Despite the bulletin board-style golf shirts that he wears, his sponsors are not big-money, at least in comparison to other sponsors of top Tour players.

Thus, while I'm not doubting that Long John has thrown away a good pile of dough at the gaming tables, my sense is that $50-60 million loss figure (even if that's reduced by roughly half through his winnings, as Daly subsequently suggested) is pure fiction. Given that, I wonder how much more of Daly's autobiography is the same?

Posted by Tom at 4:33 AM | Comments (0) | TrackBack (0)

May 5, 2006

It's Derby time!

The 132nd running of the Kentucky Derby takes place Saturday afternoon and this year's race has a definite Houston flavor. Bob and John -- owned by Texans owner Bob McNair and his wife, Janice -- goes off as one of three horses in the race with 12-1 odds, behind only Brother Derek (3-1) and Barbaro (4-1) and Lawyer Ron (4-1). The Chronicle's John Lopez has more on the McNairs and Bob and John.

Bob and John is the most recent product of the McNairs' quest to to breed a Derby winner, which they coordinate out of their magnificent 1,500 acre Stonerside Stables in the heart of Bourbon County, Kentucky. Under the careful direction of their advisor John Adger, the McNairs have populated Stonerside with a band of almost 100 broodmares and built the racing stable to its current level of about 70 horses in training. Stonerside is currently the sixth leading breeder in North America and the tenth leading racing stable.

Bob and John is following the lead of another Stonerside homebred, Congaree, who ran the second fastest mile in Derby history before finishing third in the 2001 race. The Cliff's Edge, bred and sold as a yearling at Stonerside, came in fifth after losing a shoe in the slop of 2004's rain-drenched Derby.

Meanwhile, Wall Street Journal ($) sports columnist Allen St. John explores the bloodlines of every Kentucky Derby winner from 1940 through last year and concludes that, despite horse owners' dependence on breeding, there is little direct correlation between a horse that wins on the track and one that produces champion offspring.

Posted by Tom at 5:41 AM | Comments (1) | TrackBack (0)

Lay-Skilling, Week Fourteen

Week 14 (previous week summaries here) of the corporate criminal case of the decade is in the books and the biggest news is that U.S. District Judge Sim Lake has issued an edict that he does not want the case to go beyond Week 16. So, it presently looks as if the Lay-Skilling defense will wrap up its case-in-chief next early next week, the Enron Task Force will present a short rebuttal case, and then the reading of the jury charge and the closing arguments will begin on Monday, May 15th with the jury to get the case on Wednesday, May 17th.

So, yes, it does appear that this long slog is really coming come to an end.

The first part of Week 14 was the last chapter of the Ken Lay phase of the trial, and the cross-examination of Lay this week was not much different from last week’s. Prosecutor John Hueston wasted little time addressing the actual business fraud charges against Lay, choosing again to spend far more time attempting to equate humiliation with guilt in hammering Lay over his personal financial affairs. Although not particularly persuasive substantively, Hueston's approach was at least consistent with the Task Force’s strategy of masking a fundamentally weak case through reliance on the real presumption that underlies the Task Force's theory of the case — i.e., that Enron went bust and Lay and Skilling are rich, so Lay and Skilling must be guilty of some crime.

No corporate criminal trial in recent memory (perhaps ever) has had the extensive media coverage of the Lay-Skilling trial. Multiple blogs and major newspapers cover the trial daily, and the coverage is generally helpful in attempting to keep up with what’s going on in the trial. However, just as the media coverage generally of Enron from the beginning has been overwhelmingly slanted against the company and its executives, the media coverage of the Lay-Skilling trial has not been particularly insightful in the depth of its analysis of the substance of the Task Force’s business fraud case against the two former executives. Interestingly, a good dose of the vacuity that passes for analysis of the Lay-Skilling trial comes from the media's various legal “experts,” some of whom have little or no experience in complex business cases and who appear to be competing with each other to have the most colorful comment of each day. One such expert even pulled out the Watergate card this week by comparing Lay to the late former president, Richard Nixon.

Really penetrating analysis, eh?

Meanwhile, the media reported breathlessly this week on Hueston’s questioning of Lay regarding his relatively lavish lifestyle and use of Enron stock to pay his company line of credit while attempting to reassure employees and the market that Enron was still a fundamentally strong company. During and after that testimony, the media covering the trial reached a virtually unanimous consensus that Lay and his defense team had performed poorly. However, none of the media reports or legal experts raised a key fact relating to the Task Force’s focus on Lay's personal finances — i.e., that the Task Force has not charged Lay with any crime relating to either his use of Enron stock to pay his company line of credit or his lavish lifestyle.

Sort of an important point, don’t you think?

In reality, the entire line of credit issue smacks of a red herring. Lay traditionally took a substantial part of his compensation from Enron in stock, which was a good thing for both the company and him. As an accommodation to Lay, Enron’s board approved a line of credit -- eventually reaching $7.5 million -- that allowed Lay to monetize the stock efficiently by borrowing on the line and then repaying it with his Enron stock. Each year, Lay and Enron complied with the requirement under S.E.C. rules and regulations to disclose Lay’s use of stock to pay the line.

That arrangement probably wouldn’t have made any difference in this trial except that Lay made what turned out to be a bad financial decision in regard to his personal financial affairs well before the time that the Task Force contends he was involved in wrongdoing at Enron. Because his $300 million-plus net worth was almost entirely invested in Enron stock, Lay and his financial advisers decided that he should diversify his portfolio. However, Lay continued to believe that Enron stock was the best value in his portfolio, so rather than selling the stock and using the proceeds to buy other securities, Lay borrowed $100 million from third party financial institutions, pledged his Enron stock as collateral and began buying other assets with the loan proceeds. In so doing, Lay was exhibiting an optimism and confidence in the underlying value of Enron, a fact that the Task Force conveniently ignores in blithely alleging that Lay knew that Enron was a sinking ship.

Unfortunately for Lay, the steady decline in Enron stock price during 2001 undermined the value of the Enron stock collateral for the $100 million in personal loans that he had used to diversify his portfolio. Thus, as the collateral value fell and margin calls resulted, Lay used the most efficient facility at his disposal to repay about $70 million of debt in 2001 — i.e., the proceeds from draws on his company line of credit, which he repaid with his Enron stock.

Despite the straightforward nature of the Lay’s line of credit arrangement, the Task Force spent more time on Lay's handling of it than any other subject during his cross-examination. Hueston hammered Lay relentlessly over the fact that Lay did not disclose to Enron employees in late October, 2001 that he was using Enron stock to repay the line of credit, on one hand, while advising the employees at the same time that he was purchasing Enron stock and that the stock remained a good value, on the other. Similarly, Hueston skewered Lay for his draw of a final $1 million on the line of credit roughly five days before Enron filed its bankruptcy case and Lay's application of those proceeds to pay the remaining balance on the mortgage on his multi-million dollar homestead at the tony Huntington condominiums near River Oaks. Although the Task Force has not charged Lay with any crime regarding his handling of the line of credit, Hueston repeatedly asserted that Lay's conduct in regard to it reflects that he is a hypocrite who lacks credibility on other issues.

Lay's eve-of-bankruptcy draw on the line of credit was clearly ill-advised, but the Task Force is simply wrong in its contention that Lay was largely dumping Enron stock at a time when he was advising employees and the market that it was a good value. For example, in September, 2001, Lay accepted $10 million in cash and another $10 million in Enron stock when he agreed to step back into the CEO role after Skilling resigned, and Lay used the $10 million in cash to repay a portion of his margin loans. In so doing, Lay effectively bought $10 million in Enron stock, meaning that Lay acquired over $20 million in Enron stock roughly a month before he made the statements to Enron employees of which the Task Force complains. Consequently, even though Lay was also paying his line of credit with Enron stock at the same time, his acquisition of another $20 million in Enron stock is consistent with the optimistic view about Enron that Lay was communicating to employees and the public. In its quest to demonize Lay, the Task Force simply ignores that salient fact.

In view of the Task Force’s emphasis on Lay's handling of his line of credit, I suspect that the prosecution may attempt to morph Lay’s non-disclosure regarding his use of Enron stock to pay the line of credit into an alleged basis for either a wire fraud or securities fraud charge against Lay. As noted above, there is nothing in the indictment about any of this being the basis of criminal charges against Lay, so it will be interesting to see how Judge Lake deals with that issue if the Task Force indeed seeks to make such a case to the jury. However, the underlying weakness of the Task Force’s business fraud case against Lay and Skilling is perhaps best reflected by comparing the number of questions that the Task Force prosecutors asked Lay and Skilling over such titillating issues as PhotoFete and Lay's handling of his personal finances (literally hundreds) versus the number of questions that the prosecution asked on such core business fraud issues as the alleged Global Galactic agreement and the alleged huge conspiracy at Enron (zero). Just to underscore the weakness of the prosecution's case on those points, the Task Force announced on Thursday that it was not going to call former Enron chief accountant and Lay-Skilling co-defendant Richard Causey as a rebuttal witness. So much for the Global Galactic and conspiracy issues.

Accordingly, at the Week 14 pole, the corporate criminal case of the decade appears to be boiling down to PhotoFete and whether Lay should have disclosed that he was using Enron stock to pay his company line of credit while he was touting Enron. Despite the media's fixation on Hueston's hammering Lay regarding his personal finances, Lay actually acquitted himself reasonably well on cross-examination regarding the issues relating to the Task Force’s core business fraud charges. Moreover, as most of the media fled the courtroom as Lay’s testimony on the lives of the rich and famous ended, a series of expert witnesses continued to poke holes in the foundation of the Task Force's business fraud charges over the latter part of the week. For example, I was able to sit in for a couple of hours during Wednesday afternoon’s testimony as Skilling accounting expert Walter K. Rush schooled Task Force chief Sean Berkowitz — who does not let a disadvantage in specialized knowledge deter him from lengthy cross-examination — on the validity of Enron’s accounting for its reserves and the resegmentation of the EES retail unit. Rush was clear and convincing, and explained application of relevant accounting principles to the jury in a clearer manner than any witness to date. Berkowitz was no match for him.

How all of this is going over with the jury is anyone’s guess. Could a jury convict either or both of the defendants based on such a weak case? Sure, it happens all the time. However, Skilling and Lay have presented — under extraordinarily adverse circumstances — a compelling defense that they were not involved in any criminal wrongdoing at Enron and that the company's failure was, at worst, the result of business misjudgments, such as maintaining too low a credit rating and too much leverage for a company with a huge trading operation to endure the post-bubble and post-9/11 market’s reaction to the negative Fastow/Kopper-fraud disclosures during the fall of 2001. Can a jury immersed in anti-Enron publicity for the past five years see through beguiling theories of massive frauds, conspiracies and high lifestyles to grasp that simple truth? That’s the key question still to be answered in Houston as the corporate criminal case of the decade enters its final two weeks.

Posted by Tom at 4:11 AM | Comments (8) | TrackBack (2)

May 4, 2006

60 Minutes on Colbert

I realize that he may have bombed at the recent White House Correspondents' Association awards dinner, but I'm still a big fan of Comedy Central's Stephen Colbert. Here is the recent 60 Minutes segment on Colbert (segment 2 and segment 3), which includes a good dose of Colbert's hilarious interviewing techniques.

By the way, one thing that I've always wondered about Colbert -- but that Morley Safer did not ask him in the 60 Minutes piece -- is whether the pronunciation of Colbert's name (prounouced "Cole-bear") on his show is a play on the wonderful Hyacinth Bucket character (pronounced "bouquet" by Hyacinth and "bucket" by everyone else) in the equally hilarious BBC comedy show, "Keeping Up With Appearances"? Anyone know the answer?

Update: In the small world department, turns out that Jeff Skilling's law firm -- O'Melveny & Myers -- has a Colbert connection. One of Colbert's older brothers is Jim Colbert (who pronounced his name with a good, hard "ert"), who was a litigation partner at O'Melveny for approximatey 30 years in Los Angeles. The elder Colbert was known at O'Melveny as a brilliant litigator with -- you guessed it -- a sharp wit.

Posted by Tom at 8:41 AM | Comments (7) | TrackBack (0)

Gingrich on Texas medical malpractice reform

This Opinion Journal op-ed by former House Speaker Newt Gingrich and Dallas orthopedic surgeon John Gill urges Congress to view Texas' 2003 medical malpractice litigation reform legislation as a model for such legislation:

[P]hysicians are returning to the [Texas], particularly in underserved specialties and counties. Insurance premiums to protect against frivolous lawsuits have declined dramatically, with the state’s largest carrier reporting declines up to 22% and other carriers reducing premiums by an average of 13%. The number of lawsuits filed against doctors has been cut almost in half.

But Gingrich and Gill caution to get ready for a rumble over the Congressional debate on medical malpractice reform:

In the coming days, our senators in Washington will have a chance to stand up with America's doctors and patients against the personal injury lawyers. Expect a brawl. On one side will be the lawyers, frantically attempting to protect and pad their wallets, while driving up costs for the American people and limiting our access to health-care providers. On the other will be the positive, pro-patient, pro-health-care story from Texas, a state which has taken an important first step toward creating a 21st-century health justice system that meets the needs of doctors and patients alike.

Read the entire piece.

Posted by Tom at 7:49 AM | Comments (1) | TrackBack (0)

The Bagwell disability claim lawsuit

As noted earlier here, the Stros have initiated a lawsuit against Connecticut General Life Insurance Co. over the insurer's denial of the Stros' claim under the disability insurance policy on the best player in Stros franchise history, Jeff Bagwell. Previous posts on the Bagwell disability claim are here.

Connecticut General has removed the Stros lawsuit from state district court to federal district court, and the case has been assigned to U.S. District Judge Keith Ellison, who has set the initial scheduling conference in the case for August 4th. You can download a copy of the the Stros' original petition in the lawsuit here.

According to the Stros' petition, the policy defines disability as "any physical illness or condition . . . that renders [Bagwell] totally disabled from performing as a professional baseball player." Thus, the issue in the lawsuit is whether not being able to throw a baseball, while at the same time still being able to hit one, renders Bagwell totally disabled under the terms of the policy. Connecticut General probably wishes that it could remove the lawsuit to the American League, where the existence of the designated hitter rule would mitigate in favor of the insurer's position.

As noted earlier, the Stros are represented in the lawsuit by well-known Houston plaintiff's lawyer Wayne Fisher, who is a longtime friend of Stros owner Drayton McLane. Tynan Buthod of Baker & Botts is lead counsel in the case for Connecticut General.

Posted by Tom at 5:35 AM | Comments (0) | TrackBack (0)

May 3, 2006

New York's dockside bully

In the movie A Man for All Seasons, Sir Thomas More had the following exchange with King Henry VIII's henchman, Thomas Cromwell, when Cromwell threatened Sir Thomas for relying on his common law right to remain silent regarding the reasons for his refusal to take the King's oath of allegiance to the then new Church of England:

Sir Thomas: You threaten like a dockside bully.

Cromwell: How should I threaten?

Sir Thomas: Like a minister of state. With justice.

Cromwell: Oh, justice is what you're threatened with!

Sir Thomas: Then I am not threatened.

In this devastating Opinion Journal op-ed, the Wall Street Journal's Kimberly Strassel conjures memories of the Sir Thomas-Cromwell exchange as she surveys the alleged threats that New York AG ("attorney general" or "aspiring governor," take your pick) Eliot Spitzer has made over the past couple of years as he has demonized unpopular businesspeople to further his political career. As noted in this earlier post, Spitzer's bullying of businesspeople is but one aspect of the dubious tactics that he used to regulate business in whatever manner he deems appropriate.

As noted earlier here, Spitzer is certainly not alone in using the power of his political office to criminalize easy targets for his own benefit. In fact, Spitzer's approach is not even particularly original -- he is essentially doing the same thing that Rudy Giuliani did 20 years ago in prosecuting Drexel Burnham and Michael Milken out of business. Back then, the politically ambitious Giuliani mounted a well-coordinated propaganda campaign (which, ironically, was facilitated by the Wall Street Journal reporter, James Stewart) that demonized Milken's revolutionary financing techniques that unlocked billions in shareholder wealth during the 1980's. Daniel Fischel brilliantly exposed Giuliani's duplicity with regard to Milken and Drexel in his 1995 book, Payback: The Conspiracy to Destroy Michael Milken and his Financial Revolution, yet Spitzer and others continue to use the Giuliani model for abusing prosecutorial power to criminalize unpopular businesspeople for political or personal gain.

Interestingly, Fischel may take the witness stand as early as this afternoon as an expert witness for the defense in another case involving the demonization of unpopular businessmen, the Lay-Skilling trial. Although Enron's collapse was the result of market forces, an American accounting icon was illegitimately prosecuted out of business as a result of Enron, causing huge job losses for multiple communities and untold financial hardship to thousands of employees throughout the country. Meanwhile, the lead prosecutor in that case parleyed his role in contributing to that economic hardship into a cushy partner position with a leading New York law firm.

Ms. Strassel's piece is a powerful reminder that the Giulianis and Spitzers of the world have created -- as Larry Ribstein has pointed out -- a prosecutorial agency cost problem that is at least as troubling as the corporate agency cost problem that they prosecute. As Sir Thomas also reminds us, "do you really think you could stand upright in the winds [of abusive prosecutorial power] that would blow" if that power were to set its sights on you?

Posted by Tom at 5:28 AM | Comments (2) | TrackBack (1)

S.A.'s bid for the Marlins appears dead

It appears that San Antonio's flirtation with the Florida Marlins is dead, according to this My SA.com article. Apparently, the Marlins' management has been ignoring San Antonio officials since mid-April after Bexar County Judge Nathan Wolff set a May 15th deadline for the Marlins to commit to relocation.

Meanwhile, Maury Brown over at the Hardball Times chimes in with this analysis in which he concludes that current financial conditions strongly mitigate against relocation of any Major League Baseball franchise:

Relocation only comes with a stadium tied up in a shiny bow. Given the fact that more and more municipalities are latching on to the facts that I outline, they see that providing heavy public subsidy as not favorable, nor possibly needed. With that, MLB clubs will, most likely, continue to reference relocation in one manner or another, and work to try and get funding in their current markets, the relocation threat ever present.

So, for you fans of the franchises that have been discussed here today, remember: your team, at least for the time being, isn’t going anywhere. Not, at least, when markets are, for the time being, not offering up enough to make it attractive. As I said, clubs may be threatening, but the gun’s not loaded.

Posted by Tom at 5:01 AM | Comments (2) | TrackBack (0)

Did John McClain just call himself a charlatan?

Chronicle sports columnist John McClain makes the following rather odd observations at the outset of his column today on the quality of the Texans' picks in the just-completed NFL draft of college football players:

"First of all, let's reiterate that our first two choices were Vince Young and Bush, but that being said, it's clear to anyone who knows anything about the NFL that the Texans had a terrific draft on paper."

McClain then follows that prediction with the following observation:

"No one can accurately judge this draft until several years down the road, and anyone who pretends he can is a charlatan."

McClain then proceeds to pretend to judge the Texans' draft.

Posted by Tom at 4:47 AM | Comments (3) | TrackBack (0)

May 2, 2006

The ugly case of Carl Wayne Buntion

Texas has no shortage of ugly death penalty cases, and one of the ugliest is that of Carl Wayne Buntion.

Buntion had 11 felony convictions and had been in and out of prison multiple times at the time that he was passenger in a car stopped at the intersection of I-45 and Airline for a minor traffic violation on June 27, 1990. Buntion got out of the car and shot Houston Motorcycle Patrol Officer James Irby in the forehead with a .357-caliber Magnum, destroying Irby's brain. Buntion contended that he was acting in self-defense.

During Buntion's 1991 trial on capital murder charges, State District Judge William Harmon told the defendant that he was "doing God's work" in making sure that he was executed. According to a subsequent law review article by Brent Newton: "Harmon taped a photograph of the 'hanging saloon' of the infamous Texas hanging judge Roy Bean on the front of his judicial bench, in full view of prospective jurors. Harmon superimposed his own name over the name 'Judge Roy Bean' that appeared on the saloon, undoubtedly conveying the obvious." During the trial, Judge Harmon laughed at one of Buntion's character witnesses and attacked an appeals court as "liberal bastards"and "idiots" after it ruled that he must allow the jury to consider mitigating evidence. Not surprisingly, Buntion was convicted and sentenced to death.

This past Friday, U.S. District Judge Kenneth Hoyt issued an opinion (downloadable here) overturning the conviction of Buntion. In the decision, Judge Hoyt found that Judge Harmon had deprived Buntion of his Constitutional right to a fair trial by bullying his lawyers, meeting privately with prosecutors and deferring to their wishes, hanging the Judge Roy Bean postcard from his bench, and by making remarks such as the "doing God's work" one referred to above. Judge Hoyt concluded that, even before hearing the evidence, "Judge Harmon decided that Buntion was guilty and should die."

The issues that arise from the Buntion case are not ones with easy answers. However, as noted in this earlier post, the state's administration of the death penalty is questionable enough without questions arising in regard to the independence of the judiciary in the process. Judge Hoyt's decision in this troubling case is a powerful reminder of that truth.

Posted by Tom at 7:22 AM | Comments (2) | TrackBack (0)

The special problems of criminalizing agency costs

This previous post from last week noted UCLA law professor Stephen Bainbridge's excellent explanation of corporate agency costs and why shareholders deserve protection from theft, but not from risk-taking.

In this typically insightful post, University of Illinois law professor Larry Ribstein follows up on Bainbridge's article and provides an equally lucid summary of the risks to justice and the rule of law that result from a policy of criminalizing corporate agency costs. After listing seven such problems, Professor Ribstein concludes as follows:

All of this means that in order to prosecute corporate agency costs we have necessarily given lots of discretion to prosecutors. The result is a potential prosecutorial agency cost problem that threatens to rival the corporate agency costs being prosecuted.

For evidence of that point in the context of recent prosecutions, check out previous posts here, here, here, here and here.

Posted by Tom at 5:36 AM | Comments (0) | TrackBack (0)

First Enron Broadband re-trial begins today

The three-month trial last year of five former Enron Broadband Services (nicknamed "EBS") executives on fraud and insider trading charges ended in a disastrous mix of acquittals and a mistrial for the Enron Task Force. So, this time around, U.S. District Judge Vanessa Gilmore has split the previous case into three seperate trials, and jury selection cranks up today in Houston federal court on another floor from the ongoing Lay-Skilling trial.

H'mm. I wonder whether any of those prospective jurors have heard about Enron over the past several months? ;^)

At any rate, in this first re-trial, Kevin Howard, the former EBS CFO, and Michael Krautz, the former EBS senior accounting director, will be tried together on four counts alleging that they conspired to commit wire fraud and falsify books and records in connection with a sale of video-on-demand profits. The Task Force contends that the sale was phony and was performed in order to inflate EBS earnings falsely. Howard and Krautz respond that the sale was an entirely legal and creative structured finance transaction that allowed EBS to generate earnings in an industry that was undergoing a huge shakeout amidst intense competition and fast-changing technology. The Sixth (yes, that's sixth) Superseding Indictment against Howard and Krautz is here.

Well-known Houston criminal defense attorneys Jack Zimmerman and Jim Lavine represent Howard and Krautz is represented by Washington, D.C. lawyer Barry Pollack. The Task Force has assembled a new team to handle the re-trial of Howard and Krautz led by Assistant U.S. Attorneys Van S. Vincent of Nashville and Jonathan E. Lopez of Washington, D.C.

Initial estimates are that the re-trial will last about a month.

Posted by Tom at 4:49 AM | Comments (0) | TrackBack (0)

May 1, 2006

Anna Nicole's a winner

As predicted earlier here, the U.S. Supreme Court ruled unanimously Monday that Anna Nicole Smith could pursue a tort claim in federal court that Anna Nicole's bankruptcy estate owned and asserted against her late husband's son and executor, J. Howard Marshall III.

The Court's syllabus is here, Justice Ginsburg's opinion is here, and Justice Stevens concurrence is here. Bankruptcy guru Steve Jakubowski breaks down the decision here and don't miss Peter Lattman's post on Dahlia Lithwick’s clever Slate article on the opinion.

Posted by Tom at 10:01 AM | Comments (0) | TrackBack (1)

The bloom is definitely off the USC rose

Although the University of Southern California football program has had a pretty good run under Coach Pete Carroll over the past several years, there is little question that events over this past weekend have confirmed that the USC program is in full-blown retreat mode.

The warning signs began appearing immediately after the Texas Longhorns beat the Trojans in the BCS National Championship Game in early January. This hilarious Bill Simmons article after that game revived the "Coach Fredo" (after the frustrated oldest son of the Corleone Family) nickname for Carroll that East Coast pundits had tagged him with during his less-than-stellar coaching stints with the New York Jets and New England Patriots.

But that was nothing compared to what has occurred over the past couple of weeks in the run-up to this year's NFL draft of college football players. As this NY Times article reports, it started about a week ago with various media outlets reporting that Reggie Bush's family had been in a house owned by a San Diego man who was hoping to handle Bush's marketing work, which prompted Bush and his handlers to make some ill-advised public comments. That resulted in the owner of the house disclosing publicly that he had made over $100,000 in cash payments to the Bush family and that he plans to file a $3.2 million lawsuit against Bush for fraudulently inducing Michaels to spend more than $300,000 under the premise that his sports marketing company would be representing Bush.

Inasmuch as those allegations, if even half-true, would be major violations of multiple NCAA rules and regulations, that giant sucking sound you hear is the Trojans' 2004 National Champtionship Trophy beginning to be pulled back to NCAA headquarters in Indianapolis.

But that wasn't all.

On the heels of the Bush revelations, reports last week indicated that former USC Quarterback Matt Leinart and star Trojan receiver Dwayne Jarrett were living last season in a $4,000-per-month L.A. condo, but Jarrett was paying far less than 50 percent of the rent. Turns out that each player was paying $650 monthly, with Leinart's father picking up the tab for the balance.

Now, normally there is nothing wrong with a college student's father paying a portion of his son's rent. However, Leinart's father has taken a central role in the representation of his son, which makes him look very similar to a sports agent. The NCAA does not look kindly on sports agents advancing funds for the benefit of student-athletes, particularly for student-athletes who are not the son of the agent. And just to make sure that measly major violations of NCAA regulations governing relationships with agents were not the only problem for the USC program at this point, current Trojans quarterback Mark (appropriately nicknamed "DJ Dirty") Sanchez was recently arrested on charges of sexual assault.

Meanwhile, almost every USC prospect in the NFL draft over the past weekend was picked lower than expected. Of course, as we all know, the Texans passed on the presumed no. 1 pick, Bush, while Leinart, who probably would have been the No. 1 pick in last year's draft had he elected to participate, fell to the tenth pick in this year's draft, costing him an estimated $25 million or so. Offensive tackle Winston Justice fell out of the first round altogether, as did Bush's running back counterpart, LenDale White.

In the wake of all this, Coach Fredo must be wondering how much money he left on table by not taking one of any number of NFL coaching jobs that he could have had over the past couple of seasons in the glow of USC's National Championship run. Timing is everything, Pete.

Meanwhile, the best crack I heard over the weekend on the Texans Williams-instead of-Bush pick came from Brian over at Longhorn Law, who observed that, "with this year’s #1 draft choice, Texans GM Charley Casserly has made a strong case for extending the league’s random drug-testing program beyond the field to the front offices."

Posted by Tom at 5:53 AM | Comments (0) | TrackBack (0)

Former Patterson-UTI CFO cops plea deal

These previous posts reported on the unusual case of Jonathan D. "Jody" Nelson, the former chief financial officer of Snyder, Texas (between Abilene and Lubbock)-based Patterson-UTI Energy, Inc., one of the largest land-based drilling contractors in the U.S.

Early last November, the 36 year-old Nelson resigned for "personal reasons" and, a day later, he made a regulatory filing of his intent to unload about $13 million of Patterson stock. That disclosure prompted the company to make a public announcement that it was investigating a "former executive" in connection with the alleged embezzlement of over $70 million from the company, which was followed a week or two later by the Securities and Exchange Commission commencing a lawsuit to freeze Nelson's assets. A day later, Nelson was named in a federal criminal complaint accusing him of falsely certifying an SEC report.

Well, Clear Thinkers favorite Peter Henning reports that Nelson has finally admitted to the scam and entered into a plea deal with federal prosecutors. This press release from the U.S. Attorney's Office for the Norther District of Texas confirms that Nelson pled guilty last Thursday in Lubbock federal court to one count of wire fraud and aiding and abetting, and one count of engaging in monetary transactions derived from specified unlawful activity and aiding and abetting. Nelson faces a maximum sentence of 30 years in prison and a $500,000 fine.

Nelson's scam was accomplished through through a bogus invoice scheme that had shell companies under his control receive Patterson-UTI money, which Nelson then spent on an airplane, an airfield, a cattle ranch, a truck stop, homes and vehicles. In case you were wondering, PriceWaterhouseCoopers, LLP. were the auditors who failed to notice that a 36 year-old CFO of the company was living rather large, at least by Snyder, Texas standards.

Posted by Tom at 5:22 AM | Comments (1) | TrackBack (0)

OTC.2006

It's not easy finding a hotel room in Houston this week, and the reason is not the influx of media-types for the Lay-Skilling trial.

The Offshore Technology Conference -- one of Houston's oldest and largest annual conventions -- begins today at the Reliant Park convention facilities. As over 50,000 engineers and industry executives descend upon Houston this week for the conference, more than 2,000 exhibitors from about 30 countries will fill nearly every cranny of the almost 500,000 square feet of exhibit space at Reliant Center.

The OTC covers state-of-the-art technology for offshore drilling, exploration, production, and environmental protection, and it is the world energy industry's foremost event for the development of offshore resources. This is the 37th straight year that industry engineers, technicians, executives, operators, scientists, and managers have gathered in Houston for the OTC, and the conference's exhibit floor on the floor of Reliant Stadium -- including massive and specialized equipment and technological devices used in the extraction of oil and gas from offshore locations -- is one of the more fascinating that you will ever see at any convention.

Although the OTC is an industry conference rather than one that caters to the masses, the OTC has always been interesting in that it tends to mirror the state of the local Houston economy. During the early 1970's through the early 1980's, the conference boomed as increased global demand for energy and Middle East embargoes ratched up the price of oil. After conference attendance topped out at almost 110,000 in 1982, the prolonged bust in the energy industry in the mid-1980's resulted in substantially decreased attendance, as in 1984 when the conference was held without an exhibition of equipment and technology at all. In the late 1980's, the expense of putting on the conference even prompted some industry participants to question whether the convention had become an overpriced luxury.

Nevertheless, over the past 15 years or so, the OTC has grown steadily to regain its stature as one of the key annual oil and gas industry conferences, and last year's attendance of more than 50,000 was the highest since the 1982 record. A pass to the exhibit hall is usually easy to obtain, so check it out if you have a chance. It's well worth the effort.

Posted by Tom at 4:51 AM | Comments (0) | TrackBack (0)